Rental procedures, definitions, tenancy agreements and payments
Renting A Property
Minimum Contractual Term for Tenancy
Tenancy contracts are usually set for a one year term, with the option to renew for another year.
Some landlords may prefer a longer tenancy period so as to avoid the hassle of finding another tenant following the expiry of the existing contract. A longer tenancy period will also allow the rental rate to be locked in, which benefits the tenant particularly in a growing property market.
Difference between a tenancy and a lease
A tenancy is when the contract term is three years or less; where as a lease is effective when the contract term goes beyond three years and has to be registered (with registered interest in the land) with the Land Office.
Option to Renew
Tenants will be given the first right in the option to renew the tenancy agreement, granted with at least two months’ notice given to the landlord of such intention. The landlord can either accept or decline the offer, as both parties have to be in agreement to the renewed term.
Preparation of and Payment for the Tenancy Agreement
The landlords’ lawyers will prepare the tenancy agreement. However, real estate agencies usually keep a standard copy of the Tenancy Agreement that has been pre-drafted by a certified lawyer and can also be used as a legal/legit document.
Tenants bear the legal fees as well as stamp duty.
Stamping of the Tenancy Agreement
The Malaysian Government requires a tenancy agreement to be stamped by the Malaysian Inland Revenue Authority (LHDN) and stamp duty to be collected (which serves as a form of imposed tax). This stamped document will then be regarded as a valid legal document and can be used as evidence for any (related) dispute in the Malaysian Court of Law.
Calculation of Stamping Fee
The stamping fee is calculated according to the formula below, based on the tenancy period and amount of monthly rental payable:
Yearly Rental – RM2,400
X No. of Years (tenancy period)
** Tenant to also add another RM10 for landlord’s copy.
Upon the signing of the Letter of Offer/Acceptance (or Agreement to Rent), the tenant is required to pay one month advance rental (or earnest deposit). The landlord cannot then rent the property to another tenant once the earnest deposit has been received. This is followed by tenant’s payment for security deposit (2 months rental) and utility deposit (1/2 month rental) within 14 days from the date of acceptance. Tenants will also need to pay the above-mentioned stamping duty and legal/admin fees.
Negotiation of Rental Rate
Rent control in Malaysia was abolished a few years ago and rents can be negotiated freely. There is no specific law that regulates the duties and responsibilities of landlords and tenants, yet there are still basic guidelines for rental agreements which are commonly followed.
Unfurnished, partially- or fully-furnished?
An unfurnished unit refers to a bare unit – one without any renovation done after the unit was handed over to the owners by the developers. Extensive renovation is necessary.
A partially furnished unit usually comes with fixtures and fittings installed, e.g. kitchen cabinets, lightings, air-conditioning, built-in wardrobes, etc. Rental rate is generally lower than for a fully furnished unit as loose furniture, brown and white goods are not included. This option is perfect for tenants who may already have their own furniture sets.
However, some landlords will agree to fully furnish the unit for a revised rental rate. Alternatively, tenants may also want to purchase their own furniture sets or rent them, in which case there are many furniture rental companies available.
A fully furnished unit is one that is readily available for immediate tenancy. Property ads may have phrases such as “move-in condition” because tenants will not have to worry about getting most (if not any) items to ensure the unit is in liveable standard from Day 1, and all tenants need to do is to “bring own luggage and laptop”. Living room, dining room and bedroom furniture are already provided, as well as most kitchen appliances and other brown/white goods.
Reinstatement of the Premises
Most tenancy agreements, unless otherwise stated, requires the tenant to reinstate the premises to the ‘original’ condition prior to tenants’ moving in. Any damage found to the property will usually be paid by the tenant or costs to be deducted from the security deposit before the balance fund is reimbursed to the tenant. The same applies to utility charges (e.g. electricity, water, gas, ASTRO, internet service, etc.), where outstanding sums will be deducted from the utility deposit.
Should there be no damages or outstanding sums for utility charges, the security and utility deposits will be returned to the tenant in full. It is therefore (strongly) not advisable for landlords to accept tenants’ request to “off-set” the remaining rental payments in lieu of the paid deposit amount.
Termination of Rental Contracts
The tenancy, essentially, will require the ‘injured’ party to be compensated for the remainder of the term. However, depending on the landlord and/or the exit clause in the tenancy agreement, the party wishing to terminate has to give 2-3 months’ written notice and/or compensate the ‘injured’ party compensation of 2-3 months rental. This will, in effect, give them ample time to find a new tenant/premises and cover any losses caused by the contract termination.
Expatriates will usually have the ‘diplomatic/expat clause’ stated in the tenancy agreement. This special clause in the contract usually comes into effect if the tenant has to leave the country for various reasons and thus requires an early termination. The tenant has to show evidence of why he has to leave, for instance an employment transfer or dismissal. In most cases this clause can only take effect after the first 12 months of lease. A written notice of two months is required. Effectively, the tenancy is locked in for a total period of 14 rent-payable months.
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