Tenancy Agreement – 7 Key Things Agent Needs To Know!

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First of all, it is important to know that in Malaysia, there is no specific laws regulating a tenancy. Thus it is really important to have a properly drafted tenancy agreement which clearly defined both parties’ rights, obligations and covenants. It is a common practice that agent/negotiator will prepare the agreement based on a “standard format” provided by their agencies. Sadly, most agents tend to prepare the agreement WITHOUT knowing what are they preparing.  
 

A properly drafted tenancy agreement shall clearly define mutually agreed terms and conditions by both parties, ie the landlord and the tenant. Among others, below are 7 important clauses which must be given due consideration by both parties before they sign on the dotted lines:
 
(1)    Tenure: 

(a)    Commencement date and expiry date must be clearly stated.

(b)    Is rent free period for renovation purpose given? This is quite common for commercial and industrial type of properties. Common practice is between two weeks to a month’s time, depending on the extend of renovation required. 
 
(2)    Purpose: 

What is the purpose of The Tenant renting this unit? Is it for Residential, commercial or industrial purpose? 

If it is for residential purpose, it will be a good idea to identify, maximum number of persons to stay at the demised premises at any one time. For example, it will be reasonable to state that for a 3 bedroom, 900 sq. ft condominium shall only have maximum of 6 persons to stay at any one time. Unless otherwise agreed, it is also a good idea to mention clearly that the unit is not rented by any company/business for hostel purpose. 
 
If it is for commercial and industrial purpose, it will be good to state clearly, what is the business nature of the Tenant. Should the Tenant change its business nature which is different from agreed in the agreement, the Tenant must first obtain the Landlord’s written consent. 

(3)    Deposits: 

(a)    Security deposit: Common practice is for the Landlord to collect security deposit equivalent to two months’ rent.  

(b)    Utility deposit: Most landlords collect utility deposit (power and water supply) equivalent to half a month’s rent. However due to increase in tariff charged by suppliers, some landlords are collecting deposit equivalent to one month’s rent from their tenants. 

(c)    Access card deposit: It is also a common thing for landlord to charge RM50-RM100 per access cards.

Example,

If agreed rent for a condominium is RM2,500 per month, upon execution of tenancy agreement and before release of key, tenant is to pay: 
       

        Security deposit equivalent to two months’ rent = RM5,000 
        Utility deposit equivalent to one month’s rent = RM2,500 
        Access card deposit (assuming there is two cards given by landlord @ RM50/card) = RM 100 
        On top of these, tenant normally pay one month’s advance rent = RM2,500 
        Hence total payable on deposits and advance rent part by tenant for this case will be RM10,100. 

(4)    Landlord and Tenant’s Obligations and covenants: 

(a)    Who pays for legal fees and stamp duty of the tenancy agreement? 
         The practice in Malaysia is that the tenant will pay for these fees. 

(b)    Can tenant sub-let the unit? 
         Usually, the tenant is prohibited from sub-letting the demised premises to another party. However, the tenant may be able to do so with the    landlord’s consent.

(c)    Can tenant make any alternation to the unit? 
        The tenant must not make any alterations to the exterior or interior of the demised premises without the previous consent in writing of the landlord.

(d)    Who pay for quit rent and assessment imposed or charged upon the unit? 
         Normally it is the Landlord’s obligation to pay for the fees. 

(e)    The landlord is also to maintain, upkeep and repair whenever necessary, the roof, main structure, external walls, main drains and pipes of the unit.

(f)    Peaceful enjoyment of the unit by the Tenant 
Should the Tenant pay his rent on time, then the Landlord shall allow the tenant peaceful enjoyment of the unit. However the Landlord do have the rights to visit his unit by giving ample written notice as per agreed in the tenancy agreement. 


(5)    Renewal 

If the Tenant is interested in renewing the tenancy, usual practice is for the Tenant to serve on the Landlord a written notice for such renewal, three months before expiry of the tenancy. Renewal with a possible rent adjustment (or none) must be mutually agreed upon by both parties. It is advisable for both parties to sign a new tenancy agreement upon renewal.  

(6)    Termination 

(a)    Is early termination allowed? On what terms and conditions? 

(b)    Or is the tenancy for a fixed term? It means that neither parties can terminate the tenancy before the agreed expiry date. Should one of the parties choose for early termination, then compensation must be clearly stated in the tenancy agreement. 

(c)    The tenant is supposed to yield up the demised premises with all fixtures and fittings belonging to the landlord upon the determination of the tenancy in good and tenantable repair and condition, fair wear and tear excepted. The tenant shall make good at their own expense any damage caused to the demised premises or fixtures and fittings therein as a result of the tenant’s act or neglect.

(7)    Inventory list 

(a)    If the unit is tenanted on a partly furnished or fully furnished basis, it is a must to include this inventory list together with the agreement. 

(b)    As the saying goes, a picture speaks a thousand words – it will be ideal to have color pictures of the units attached together with the agreement!