Denise Chong points out the key areas that Landlords should take note and provide for in drafting Tenancy Agreements
Under Malaysian Law, only a tenancy exceeding 3 years may be registered against the title under the National Land Code 1965. So, whilst a Landlord of a registered lease is statutorily protected, a Landlord of a Tenancy (a lease less than 3 years) is not, and his relationship with his tenant is instead governed by a formal contract – a Tenancy Agreement.
Hence, it is especially important for a Landlord to set out terms and conditions in the Tenancy Agreement that will adequately protect his rights in the demised premises and particularly, to secure prompt payment of rentals from the Tenant. Below are a few specific areas that a Landlord should consider specifically providing for, in a Tenancy Agreement.A. Self-help Remedies
A common and oft-heard problem in Malaysia regarding tenancies is the situation where a Tenant has defaulted or is in breach of the Tenancy Agreement, yet refuses to move out from the demised premises. The question that arises is whether the Landlord can resort to ‘self-help’ – ‘self-help’ here refers to situations where the Landlord himself takes forceful measures to evict the tenant, such as breaking the locks to the demised premises, forcibly moving the Tenant’s possessions out from the property, cutting off water supply etc. Landlords should take note that the remedy of self-help however is not available under Malaysian law. Section 7(2) of the Special Relief Act 1950 (“SRA”) denigrates the remedy for ‘self-help’ by making it compulsory for a Landlord to seek to enforce his right to recover the property by way of a Court action only.
Hence, in order for a Landlord to recover vacant possession, he would have to file a court action for vacant possession. For that, an eviction notice must first be served to the Tenant, giving the Tenant a certain grace period to handover vacant possession and to pay all overdue rental. After the expiry of such grace period, the Landlord must take out a court order for vacant possession. Only then can the Landlord seal the premises with the help of the court bailiff (to prevent access and entry to the delinquent tenant).
This strict position is further emphasized in the case of SME Aerospace Sdn Bhd v Steyr Mannlicher (M) Sdn Bhd  5 CLJ 121, where the Court held that the use of the word ‘shall’ in sec. 7(2) of the SRA imposed a precondition for a court order before a Landlord can attempt to recover possession.
As for whether a Landlord can resort to disconnecting utilities to the demised premises, there have been cases where this has not been allowed, as shown in the case of Abu Johan Aboo Backer v Ahmad Faizal Mohd Anuar  1 LNS 898 wherein the judge was of the opinion that the Defendant should be held responsible for being high-handed and had taken the law into his own hands by cutting off the water supply to the Premises, without a Court Order.
Conversely, self-help in the context of a management company and occupier relationship has been allowed in some cases, such as in Premier Model (M) Sdn Bhd v Phileo Promenade Sdn Bhd & Anor where the Court had alluded that where provided for in the agreement, it is well within the rights of the management office to cut off or suspend water supply to the individual units, if the occupier of units fails to pay service charges, and the action of the Plaintiff in cuting off or suspend water supply was not invalid.
Thus, although there is still uncertainty as to whether self-help is allowed and whether a provision allowing a Landlord to disconnect utilities to the demised premises can be enforceable in the case of a delinquent tenant, it is still good practice to insert such provisions as well as provisions expressly allowing for re-entry of the Landlord into the demised premises in the event of breach, in the Tenancy Agreement in case of any changes in law or in the event there are subsequent common law cases that allow for self-help in the Landlord-Tenant context. At the very least, such provisions would act as deterrence to a Tenant.
B. Revision of Rental
Rental is usually negotiated and agreed upon prior to execution of the Tenancy Agreement and forms part of the salient terms and conditions. However, the Landlord can consider a provision to provide for a revision in rental due to specific change of circumstances such as one that affects the costs of maintaining the property. Such circumstances may include excessive hike in assessment levied on the demised premises during the term of the Tenancy Agreement. Having such a provision would allow the Landlord to revisit the terms in the Tenancy Agreement and for the rental to be adjusted accordingly instead of having to wait until the term expires. Take for example the 2014 DBKL revision on assessment – in such a circumstance, if the Tenancy Agreement does not contain an appropriate provision to allow for revision in rental, the Landlord would have to absorb the increase in assessment (which may be substantial in some cases) without being able to pass on the burden to the Tenant through increased rental rates.
C. Sub-Letting of Property-
It is also rather common nowadays for Tenants to subsequently sub-let the demised premises or part of it, to a third party without the Landlord’s consent. This may give rise to a whole host of problems for Landlords such as having no control over the sub-tenants, sub-tenants not knowing of the covenants binding on the main tenant (and/or breaching negative covenants), as well as tenants unjustly sub-renting the property at a higher rental and thus making a profit.
Hence, it is important for Landlords to ensure that there is included in the Tenancy Agreement, a provision that explicitly prevents the Tenant from sub-letting or otherwise parting with the actual or legal possession or granting the use of the property in favour of any other party UNLESS the Landlord’s prior written consent has been obtained.
With the coming in force of the Goods and Services Tax Act 2014 (“GST Act”), Landlords should also ensure that it is spelled out clearly in the Tenancy Agreement that the Tenant is the party who shall pay the GST and shall keep the Landlord fully indemnified against any GST chargeable or imposed by the competent authorities. Furthermore, it is advisable that the clause in the Tenancy Agreement also provide that the Landlord shall have the authority to collect any GST payable by the Tenant on behalf of the competent authorities, as the GST Act places the obligation on Landlords to collect and thereafter submit the GST to authorities.
E. Compliance with Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA)
Another law which came into effect not long ago is AMLA which addresses the offence of money laundering, the measures to be taken for the prevention of money laundering and terrorism financing offences. AMLA also provides for the forfeiture of property involved in or derived from inter alia money laundering and terrorism financing offences.
With the government of Malaysia taking such a firm stand on money laundering and related activities, it is important for Landlords to protect themselves from any adverse implication that may arise from the Tenant’s activities in the demised premises or through any payments made to Landlord. Landlords should ensure a provision in the Tenancy Agreement where the Tenant declares that they are aware of AMLA and that all funds used by the Tenant are obtained from legitimate source. Ideally, it should also be drafted such that the Tenant accordingly provides an undertaking to indemnify the Landlord against all claims, costs, damages and expenses which may be brought, suffered or incurred by the Landlord in respect of any contravention of any of the provisions of the AMLA caused by the Tenant.
Key areas that Landlords should seek to consider and protect in through their Tenancy Agreements include adjustment and collection of rentals including tax issues, recovery of their premises upon expiry of the tenancy or earlier termination, and indemnities from the Tenant to cover any illegal use or claims by other third parties due to the Tenant’s activities in the property. It is crucial for Landlords to ensure that the terms of their Tenancy Agreement sufficiently protects these and other interests. One way to ensure the strength of your Tenancy Agreement will be to have the right and experienced solicitors assist you in vetting your Tenancy Agreement.
CCLC Corporate Commercial (Real Estate) has vast experience in tenancy matters, having represented numerous landlords and managers of commercial complexes in Malaysia in their tenancy agreements and related dispute resolutions with their tenants.