The property specifics, rental amount and deposits, tenancy length and renewal option, landlord’s responsibilities, tenant’s obligations, house rules, prohibitions and limitations, as well as how to resolve disputes should all be included in a Tenancy Agreement.
What is a tenancy agreement?
This is a formal agreement between a landlord and a tenant that spells out each party’s responsibilities and obligations throughout the tenancy period. It also includes a full description of the rental home, including its furnishings, fixtures, and other features.
Landlords should use an attorney to prepare a Tenancy Agreement to ensure that the agreement is as thorough as possible, while potential renters should consult their own legal to review the contract and request amendments before mutually agreeing to a final version.
However, because employing an attorney to design a lease contract may be pricey, many Malaysian landlords choose to draft their own leasing agreement and have prospective tenants sign it.
Please be aware that there are presently no federal guidelines governing the scope and delimitation of a tenancy agreement in Malaysia. This implies that either the landlord or the potential renter may add a lot of terms and conditions to the contract, making it more beneficial to both parties.
Please be aware that there are presently no federal guidelines governing the scope and delimitation of a tenancy agreement in Malaysia. This implies that either the landlord or the potential renter may add a lot of terms and conditions to the contract, making it more beneficial to both parties.
What Are the Most Important Terms That Should Be Included in a Tenancy Agreement?
In a tenancy contract, there are several items that must be mentioned. To avoid misinterpretation, they should be properly phrased to ensure that the meaning is obvious. But, at its core, a Tenancy Agreement should have the following provisions:
1. Property Specifications:
Indicate the type of home being rented as well as its location. Indicate the unit number in non-landed buildings such as condos.
Make it clear if you’re renting out the entire flat or just a section of it, such as a room.
It’s also a good idea to mention the property’s condition – is it in need of fixtures, furnishings, or appliances?
Or will it include appliances such as a refrigerator, air conditioner, and kitchen utensils? If this is the case, the landlord must include an inventory in the agreement, and the renter must validate the existence and condition of these goods before signing.
2. Deposits and Rental Amounts:
Indicate the precise monthly rent that the renter must pay, as well as the payment’s due date and method of payment (e.g. cash, bank deposit, or wire transfer). Include the amounts for the Earnest Deposit, Security Deposit, and Utility Deposit, if applicable.
3. Tenancy Period and Option for Renewal:
The tenancy period is a set amount of time during which the renter rents the property. You must also be explicit about the length and duration of the agreement while creating it. The tenancy agreement is normally for a year at a time. One-year, two-year, and three-year durations are the most prevalent.
This is because any rental agreement that lasts longer than three years is considered a lease rather than a tenancy. Instead, if you’re renting on a monthly basis, make a note of it. Indicate the date on which the contract was signed, as well as the start and end dates of the renting period.
You can also include terms allowing the tenant to renew or extend the tenancy for a set amount of time, subject to specific circumstances.
4. Responsibilities of the Landlord:
These responsibilities include paying annual property taxes to the appropriate authorities, insuring the property and paying insurance premiums, and ensuring that the furnished furnishings and appliances are in excellent working order.
Aside from the annual property tax, you should be aware of another type of tax if you’re a landlord. This is a type of rental income tax in which you, as a landlord, are taxed on the money you earn by renting out your properties.
When you earn from the sale of a property, you must pay Real Property Gains Tax (RPGT), and when you profit from the rental of a property, you must pay rental income tax.
However, there is some good news! Your rental income is eligible for a 50% income tax exemption. The following conditions must be met:
- Only applies to residential homes, and you must be a Malaysian citizen.
- Rental revenue per property must not exceed RM2,000 per month.
- The property is rented on the terms of a legally binding tenancy agreement between the owner and the tenant.
- Tax exemption is granted for a maximum of three years of assessment in a row.
- Effective for tenancies entered during the assessment year of 2018 to 2020.
Obligations of the Tenant:
These responsibilities include paying rent and utilities on time, maintaining the furnishings, appliances, and interiors, reporting the landlord of any issues or structural deficiencies, and adhering to condominium and landlord rules.
The following are the house rules, prohibitions, and limitations:
Make a list of things the renter is not permitted to do. A renter, for example, is not allowed to lease the premises or any part of them to a third party. The apartment is only allowed to be used for domestic purposes, therefore the occupant cannot conduct a company from it.
Clearly prohibit the practice of vices and illegal activities such as gambling and drug use, as well as anything that might jeopardize the property’s insurance coverage. Any renovations to the property are prohibited. The landlord may also impose restrictions, such as allowing just one family or a set number of people to live in the house.
How to Resolve a Conflict:
In the case that the lease agreement does not address certain concerns, or if there are misinterpretations or misunderstandings between the landlord and tenant about specific articles and provisions in the contract, this section covers the dispute resolution process.
Things You Should Look Out for When Signing a Tenancy Agreement
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The Landlord’s and Tenant’s Names (s)
Because the Tenancy Agreement will be a legally enforceable document, it is critical that the names be exact. If there is a disagreement over a misspelled name, it is conceivable that the party with the misspelled name will not be able to argue a winning case in court.
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The Address Of The Property That Is For Rent
It’s also critical to accurately record the property’s address in the Tenancy Agreement; otherwise, the tenant may never have rented the home they were supposed to.
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The Start Date Of The Tenancy
It’s critical to get the start date of the tenancy right, especially if the Tenancy Agreement contains a time-sensitive item, such as a contract duration.
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Parts of the property that the tenant is permitted to use
If the renter is just renting a portion of the entire unit, it is critical that the Tenancy Agreement explicitly states which portion the tenant is permitted to utilize. It’s also crucial to specify what the unit can be used for in the Tenancy Agreement.
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Tenancy Timeframe
The length of the tenancy is crucial since it determines how long the tenant is obligated by the contract’s terms and conditions. This is especially essential for the landlord because the renter is no longer bound by the lease’s terms and conditions when the contract expires.
There are contracts with a fixed term tenancy and contracts with no fixed term tenancy, which are referred to as periodic tenancies in this situation.
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Payments for rent and bills
The rental amount should be indicated properly in the contract. The bills that the renter is responsible for paying, whether they are utility bills or assessment taxes and land taxes, should be clearly specified. The contract should also mention whether or not the rental can be increased on a regular basis.
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Provided Services
If the unit has electrical appliances, it should be specified who is responsible for their upkeep.
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Notice Period Length
The Lease Agreement should also indicate the notice time to the landlord if the renter intends to quit the tenancy early before satisfying the contract. The “Break Clause” is another name for this.
Both the landlord and the tenant must sign the Tenancy Agreement after checking that everything is in order. The Malaysian Inland Revenue Authority will then stamp this document, with the renter typically bearing the expense of the Stamp Duty unless otherwise agreed.
The Different Types of Tenancy Agreements
Landlords in Malaysia typically demand renters to pay an Earnest Deposit, Security Deposit, and Utility Deposit in addition to the monthly rent.
1. An initial deposit
This is the amount paid to hold the rental unit for the following seven days, preventing the property owner from leasing it to other potential renters. This is usually one month’s rent, and a real estate agent can hold it in escrow for you.
This is often submitted to the landlord together with the tenant’s “letter of offer,” a one-page document expressing the latter’s desire to rent a certain home. The Earnest Deposit is typically used as the first month’s rental payment when the tenancy formally begins.
2. A security deposit
Consider this a security deposit that will be waived in favor of the landlord if the resident violates the tenancy agreement, such as by quitting the premises earlier than agreed. The whole sum is repaid after the rental ends if the renter fulfills the contract and there are no difficulties during the tenancy.
This is usually equal to two months’ rent, and if the tenant breaks the lease, it can be used to pay for cleaning and repairs, as well as the replacement of fixtures, appliances, and keys.
3. Utility Deposit
Its goal is to settle any outstanding utility bills, such as water, power, gas, and sewage, that were not paid at the conclusion of the lease period. In Malaysia, this is usually 50% of the monthly rental fee (although in rare situations, the landlord may choose to collect the entire month’s rent if the half-month sum is too low). The Security Deposit and Utility Deposit are provided to the landlord after the Tenancy Agreement is signed.
How to Calculate Legal Fees for Tenancy Agreement Malaysia?
Aside from the admin costs and the actual rental money, there are other fees that must be paid before a tenancy may be finalized, particularly at the start: legal fees.
Legal expenses, unlike stamp duty and administrative fees, are strictly dependent on the length of the tenancy, with a three-year minimum (either less or more than 3 years). Here’s a general rule of thumb:
The following legal expenses are due if the rental duration is less than three years:
- 25% of the monthly rent for the first RM10,000 of yearly rent
- 20% of the monthly rent for the next RM90,000 in yearly rent
- If the annual rent is more than RM100,000: Negotiable
If the rental duration is more than three years (lease), the following legal expenses must be paid:
- 50% of the monthly rent for the first RM10,000 of yearly rent
- 20% of the monthly rent for the next RM90,000 in yearly rent
- Where the yearly rent exceeds RM100,000: Negotiable
In Malaysia, it is normal for both the tenant and the landlord to divide legal expenses as they see fit, rather than the tenant carrying the full cost.
How to Stamp Tenancy Agreement in Malaysia?
Your Tenancy Agreement, Instrument of Transfer, and Loan Agreements are examples of papers that are subject to stamp duty. Stamp duty is usually paid by the buyer rather than the seller. Whether you like it or not, you must get your written papers stamped within 30 days of the execution date or face fines.
Stamp duty on tenancy agreements is determined based on every RM250 of the annual rental, rather than a single fixed amount.
According to the chart below, the stamp duty cost for tenancies of less than one year is RM1 every RM250. The stamp duty amount is RM2 per RM250 if your tenancy tenure is between 1 and 3 years. To view an example calculation, scroll down!
How to Calculate Stamp Duty for Tenancy Agreement Malaysia?
It’s not difficult to figure out how much stamp duty you’ll have to pay on your rental agreement. You’ll only need a basic formula, which you can get here:
Step 1:
Calculate the total cost of your annual lease. For instance, suppose you wish to rent out your apartment for RM1,200 per month. Your monthly rent would be RM14,400 per year (RM1,200 per month x 12 months).
Step 2:
Determine the taxable rental amount. The taxable rental amount would be RM12,000 (RM14,400 – RM2,400) since the first RM2,400 is free from stamp duty.
Step 3:
The stamp duty would be charged according to the duration of the tenancy (refer to table above). We’ll give an example for each one, using the same assumption of renting out your whole unit at RM1,200 per month:
- 1 year or less
[(1200 x 12) – 2400]
————————— x RM1 = RM48
250
*Additional copy of stamped Tenancy Agreement: RM48 + RM10 = RM58 (this total amount is for 2 copies of the Tenancy Agreement, one for the landlord and one for the tenant, both of which need to be stamped by LHDN in order to make it legal and admissible in court.)
- > 1 year to 3 years
[(1200 x 12) – 2400]
————————— x RM2 = RM96
250
*Additional copy of stamped Tenancy Agreement: RM96 + RM10 = RM106
- > 3 years onwards
[(1200 x 12) – 2400]
————————— x RM4 = RM192
250
*Additional copy of stamped Tenancy Agreement: RM192 + RM10 = RM202
One item to keep in mind while calculating the stamping fee is that if the amount left over after deducting the RM2,400 exemption from the annual rental is not a multiple of 250, you must round it up to the nearest (and highest) 250.
Confused? Don’t be that way! Let’s look at an example case where you wish to rent out your room for RM250 per month for a year:
RM600 = [(250 x 12) – 2400]
Due to the fact that RM600 is not a multiple of 250, you must round up to the next (highest) 250, which is RM750. As a result, your stamping cost would be:
RM3 = (RM750/250) x RM1
How to Renew Tenancy Agreement in Malaysia?
Renewal of your lease agreement might essentially be a re-negotiation of your current one. Keep in mind that an oral agreement isn’t considered legally enforceable, so get everything in writing. This is the point at which tenants and landlords may start fine-tuning their tenancy conditions and filling up any holes that they found in the previous leasing agreement.
It’s simpler now that both the landlord and the renter are familiar with one another and can follow the policies and preferences of both parties. This gives you the power to negotiate rental price, tenant and landlord obligations, and even the length of your lease if you choose to stay for longer or shorter than the previous agreement.
The procedure is identical to the one described previously, in which you initially discussed the tenancy agreement before moving in. Because the tenancy is being renewed, the essential obligations remain the same, from the tenants paying the needed deposits to paying stamp duty and other costs. After that, the landlord must submit the agreement to the Lembaga Hasil Dalam Negeri Malaysia (LHDN) in order for the new tenancy to become legally effective.
Who Should Pay For Tenancy Agreement Malaysia?
In terms of who is responsible for paying the stamp duty costs associated with the tenancy agreement, the renter is responsible under Section 33 of the Stamp Act 1949.
The Benefits of Having a Tenancy Agreement:
- Tenants have a set rental rate and term.
- Keeping a tenant’s deposit safe
- Owner has more leverage.
- Owners’ protection
How to Terminate a Tenancy Agreement?
You may have a few alternatives depending on your tenancy agreement. First and first, it’s always a good idea to speak with your landlord as quickly as possible: be honest and direct. They’re usually simply trying to operate a business and make some money, so they’re not interested in making things tough.
It’s possible that there’s a strong rental market, and they’re OK with you simply changing the renter. In such a scenario, you may go ahead and put in some effort to replace yourself on the tenancy and get your security deposit back in full. It’s also possible that the landlord is unhappy with your condition and needs a two-month notice to end the leasing arrangement.
In such an instance, you can find yourself in a situation where you’re renting a new house in KL while simultaneously paying for the one in Penang. The landlord, on the other hand, may offer to buy out the tenancy or recommend that you move out early but forfeit your security deposit. You are allowed to relocate immediately in such an instance, but you will forfeit the RM3,000.
Unfortunately, a diplomatic clause is unlikely to cover your relocation because it is internal to Malaysia and is a decision you took rather than one imposed by your present employer. In any event, communicating and being upfront with your landlord is always a good idea. You never know, you might be able to save your security deposit while ending your rental on time!
The definitions listed above are critical to your notice of early tenancy termination. They will assist in determining the costs and ramifications of termination. If you, as a landlord or a tenant, have determined that the rental agreement should be canceled early, the next step is to send an official termination of tenancy agreement letter.
A letter is a technique of documenting your decision and the reasoning behind it. This ensures both parties have clear communication while also giving proof of your decision.
Conclusion
Before renting a property, it’s crucial to figure out how long you’ll be staying. However, as previously said, not everything happens as planned. You should be able to make the proper judgment in certain situations, for better or worse. Talk to your landlord and make sure all of the conditions of your Tenant agreement are written down to avoid future disagreements.