In Malaysia, there are a high rate of rental distress or non-payment of rental by tenants. Most times it involves either too little arrears (amount of rental not paid) to large sum which can go up to RM50,000.00 and above. For those with too little outstanding amount, the Landlords may most likely face a bigger issue which is the eventuality of Tenants who are reluctant to move out of the premise. In these cases which normally involve monthly rental less than RM2000.00, the cost of legal action will be multiple times of the rental yield and hefty price like this can be avoided.
Therefore, it is important to take precaution steps which I will discuss as following.
TIP 1 – KNOW YOUR TENANT
It is very important to know your Tenant. Obviously, isn’t it? – the question is how to know get to know your Tenant?
There are several ways to understand the Tenant profile. Normally, my Clients will engage us to conduct a simple background search on the Tenant which cost less than RM100.00. Simple financial background search will reveal whether your prospect Tenant is having any financial issue or legal claim.
TIP 2- A GOOD TENANCY AGREEMENT
In the Malaysian market, it is common to have Landlords drafting their own agreements by using the online templates or having their Property Agents to draft these tenancy agreements. It is nothing wrong with these tenancy agreements but many times these tenancy agreements fail to address potential issues and fail to provide the sufficient avenues to the Landlords to protect their interest and to ensure that the rentals will be paid and in the event of outstanding, the Landlord will be able to take sufficient steps to recover the loss as well as the property.
The following are several key points to be addressed in a Tenancy Agreement:-
- Identifying the Tenants;
- Restriction the Usage of the Tenancy – (only for personal stay and not for other commercial usage which may potentially destroy the property (example manufacturing and harbouring illegal immigrants)
- The original condition of the Property;
- Payment terms and date of payment monthly; and
- Possible information of other occupants of this property.
A good tenancy agreement must be able to achieve the following:-
- Ensure the Tenant will pay on time;
- In the event of non-payment, the Landlord is able to recover the property;
- The Landlord is able to recover the loss of income;
- Ensure the Property is used in a normal manner and protect the property from any damages;
- Able to recover loss if damage was done; and
- Able to enforce by way legal action to recover loss and outstanding.
Therefore, as a Lawyer, I will advise you to seek advice from qualified lawyers which drafting of the tenancy agreement as the legal fee is not as much as the prospective loss you may suffer from damage of your property or cost of commencing a legal suit in the future. It is always best to invest in good tenancy agreements which may range from hundreds to thousands depending on the complexity of the tenancy. A simple rental tenancy may range as low as RM800.00 to RM1500.00.
TIP 3- LET THE TENANT TO APPLY FOR THEIR OWN UTILITIES SUCH AS ELECTRICITY AND WATER
It is a very important step to ensure that your electricity account with the Tenaga Nasional (TNB) is terminated before you rent to anyone. Skipping this step will consequently attract the following risks:-
- In the event of non-payment of the electricity bill, despite it was used by your tenants and not you, you are actually liable to pay for this outstanding, regardless of you able to prove prior tenancy. As long as the account is under your name, you have to pay for it!
- In the event if the TNB discovers that your electricity meter is tampered with, you will be charged (summon in the Court) for the conduct of tampering as well as for back calculation of the electricity payable. In another word, the TNB will calculate backward to up to 10 years of electricity bill payable (with the assumption that you have tampered with the meter since then without having to prove the same). We have Client whom we sued by the utility company up to RM1,000,000.00.
Thus, it is very IMPORTANT to terminate your account before renting out to any person.
TIP 4- TAKE ACTION BEFORE IT IS TOO LATE
Normally, when you rent out your property, the tenant will pay a lump sum of security deposit which is normally ranging from 2 to 3 months rental.
Thus, it is important to ensure that you take legal action early enough. When is the best time? We normally advise our Client to issue a Letter of Demand once the Tenant defaults the rental for a month or 1 ½ month.
Why 1 month? Or 1 ½ month. The rational is simple. If you only requested for 2 months rental deposit, once the tenant defaulted 2 months in a row, you would have suffered loss of rental income thereafter. Thus, letter of demand which normally will provide a grace period of 7 days or 14 days to the Tenant to pay, failure which you may then proceed to issue a Letter of Termination and Notice of Eviction at the same time, should be issued as early as possible to reduce the possible loss of rental income.
Letter of Demand is a letter which states the demands for the outstanding rental. Letter of Termination on the other hand is a letter which states your intention to terminate the Tenancy Agreement at once which is normally issued together with the Notice of Eviction which imply your rights to take over the property and the Notice of Eviction is a document to request the Tenant to hand over the property voluntarily.
However, at most time, the defaulted Tenant neither will be unwilling to pay for the outstanding nor they will hand over the property voluntarily.
In situation like this, there is only one way to recover your property, which is by applying to the court order to evict the tenant. This will have to be done with the help of a lawyer.
Whether you are renting out your house or commercial property, pre-renting steps must be taken to protect your interest. It is always best to prevent unwanted incidents such as defaulting of rental, destruction of the property or inability to recover your property than having to incur hefty legal cost to rectify these issues at the later stage.