A tenancy agreement is an important document for the rental of property in Malaysia. This article explains what it is, the steps to prepare, and the related fees.
What is a Tenancy Agreement?
A tenancy agreement is a written legal document that states the arrangements between landlord and tenant for the rental of property. It gives security to the parties by stating each party's responsibilities and rights.
The agreement is made according to the Contracts Act 1950 and covers risks and issues that can happen in the tenancy of property. The benefits of having a rental agreement include:
Clarity on rights and responsibilities: The landlords and tenants know exactly what they should do.
Right upon breach: The parties have the right to claim compensation when the other party breaches the agreement.
Essential Elements of a Tenancy Agreement
Well-written tenancy agreements usually contain below terms and conditions which are:
Property and Parties Details
The details of the landlord and tenant including identification number and address should be included. Furthermore, it should include property details as follows:
(a) Property address: It includes the unit number, town, postcode, and state.
(b) Type of rental property: It is usually of building, land, or house.
(c) Area rented: The coverage of the rental, whether the whole unit or specified area (etc.: room)
(d) Condition: The furnishing of the property and if it includes furniture and fixtures, then the details of the furniture should be included as inventory in the agreement.
Tenancy Period and Renewal Options
The agreement should also state:
(a) Rental period
The duration of the tenancy should be stated, usually in years. A tenancy that is more than 3 years is considered to be a lease under National Land Code and a lease agreement should be prepared instead.
(b) Starting and ending date
The starting and ending dates of the tenancy including date, month, and tenancy (example: 1.11.2021-1.11.2023) should be included.
(c) Renewal clauses
Provided the tenants comply with the tenancy terms, the tenant is usually given the right to extend the tenancy agreement period for a further term by giving certain months of notice period to the landlord before the end of the original tenancy term.
Rental Amount, Deposits, and Payment Terms
The agreement should include the monthly rent and when it is due for the rental payment (which is usually before the 7th of each month). Apart from that, the tenant has to pay some rental deposits which are as follows:
(a) Earnest Deposit
This is paid to signal a tenant’s commitment to renting the property. This fee is usually non-refundable if the prospective tenant changes their mind and does not sign the agreement.
(b) Security Deposit
Security deposits are for protecting the landlords from financial loss and ensuring the tenant complies with the tenancy terms such as payment of rental. If the tenant damages the properties, the landlord usually can deduct and forfeit these deposits as damages and compensation for the losses suffered.
(c) Utility deposits
Utility security deposits protect against outstanding bills at the end of tenancy and usually, it is set at 50% of the monthly rental.
Landlord's Responsibilities
As a property owner, the landlord also has obligations which usually include:
(a) Payment of property tax
The landlord should pay the taxes imposed on the property such as quit rent and assessment tax.
(b) Quiet enjoyment of property
The landlord should allow the tenant to enjoy and use the property without disturbance from him.
Tenant's Responsibilities
On the other hand, tenant’s obligations include:
(a) Payment of the monthly rental
Tenants should pay the monthly rental on time and this is among the important terms.
(b) Upkeep
The tenant should ensure the conditions of the properties and premises remain in reasonable condition.
(c) Occupancy purpose
The rental agreement usually states the purpose of tenancy, that is for commercial or residential purposes. Thus if it is residential property, then it should be used for housing/home and not for commercial reasons.
(d) Compliance with laws and regulations
The tenant should also comply with the laws related to the property such as obtaining a business license if it is for commercial purposes.
Rules and Restriction
The agreement may also include these restrictions:
(a) Illegal purposes
The property should not be used for illegal purposes such as for gambling.
(b) Furnishing
There can be added a clause that if the tenant intends to renovate the property, it should get prior consent from the landlord.
(c) Subletting
The tenant should also get consent from the landlord for any subletting of that property.
Breach, Termination, and Legal Disputes
When a party breaches the agreement such as non-payment of the monthly rental, a formal notice is usually given to the defaulting party to rectify the breach within a certain period. If the defaulting party still fails to rectify, then the innocent party usualy can opt for early termination of the agreement following the termination clause.
After that, the innocent party can:
(a) Letter of demand
By sending a letter of demand to the defaulting party to seek payments and compensation and stating that if the defaulting party still fails to comply, then legal action will be taken and the defaulting party should bear all consequences and costs.
(b) Eviction proceeding
If the defaulting party such as the tenant still fails to pay, then the innocent party can initiate legal proceedings to claim damages. After getting the court order and then the eviction order, the landlords can then evict the tenant and recover the property.
Steps After Preparing Agreements
After preparing the rental agreement, the parties should then:
Signing
The parties can sign the tenancy agreement on the signature page. If it is a company, then the director can sign on behalf.
Stamping
The agreements are then sent to the Inland Revenue Board or ‘Lembaga Hasil Dalam Negeri Malaysia’ for stamping. It is to ensure the agreements are admissible as evidence in the court if there is a dispute later on.
Fees and Charges
There are mainly 3 types of charges for preparing rental agreements which are:
Stamp duty
This is the stamp duty chargeable for stamping contracts in Malaysia, including tenancy agreements and is calculated according to the Stamp Duty Act 1949 and is based on the annual rental.You can use our tenancy agreement stamp duty calculator Malaysia to calculate the stamp duty. As a general rule, each additional copy (after the main tenancy agreement) stamp duty is RM 10.
If you are looking for stamp duty for purchase of property, then you can use our stamp duty calculator to calculate the stamp duty and legal fees.
Legal fees and disbursements
The legal fees for tenancy agreement follow the Solicitors Remuneration Order 2023 and are also based on the duration of rental and monthly rental. You can use our tenancy agreement stamp duty calculator to calculate the legal fees for preparing a rental agreement.
Fees to estate agent
The estate agent may charge a fee for brokering the tenancy. Depending on the rental amount and negotiation between the parties, it can range between 20% of the monthly rent to 25% of the monthly rent for a higher rental amount.
If you are finding tips, tools and how-to guides in preparing a tenancy agreement, this article is a good guide for you.
Conclusion
A comprehensive written tenancy agreement in Malaysia provides clarity and protects the interests of both landlords and tenants. If you are interested in our legal services or have any enquiry, do contact us and we will assist you.
Frequently Asked Questions
1. What is tenancy agreement in Malaysia?
A tenancy agreement in Malaysia is a legally binding document between a landlord and a tenant. It contains agreements between both parties on important details on the rental including rental amount, period, and responsibilities of both parties.
2. How much is a tenancy agreement in Malaysia?
The fees for preparing a tenancy agreement in Malaysia include legal fees with disbursements and stamp duties. It mainly depends on the rental amount and tenancy period.
3. How to prepare a tenancy agreement?
You can prepare a tenancy agreement by including the main terms and conditions as listed above. After preparing the agreement, then the parties should sign before sending the agreement for stamping.
