Renting or leasing a property can seem straightforward at first, some might even think a verbal agreement and a handshake are enough to seal the deal. It’s quick, simple, and skips the hassle of drafting a written contract. However, relying on verbal agreements is a risky approach. When disputes arise, resolving them can become a nightmare, especially if the landlord and tenant remember the terms differently.

Verbal agreements also tend to leave out important details, like what happens if the tenant damages the property or how payments for repairs should be handled. That’s why a proper tenancy agreement is so important. So, whether you’re renting a place to call home or leasing out your property, a tenancy agreement is an essential part of the process. It outlines the terms and conditions that help avoid misunderstandings and keep things running smoothly.

If you’re in Malaysia and want to know more about how tenancy agreement works, this guide breaks it down in a simple, easy-to-follow way.

What is a Tenancy Agreement?

A tenancy agreement is a legally binding contract between a landlord and a tenant that outlines their responsibilities and obligations during the rental period. It includes detailed descriptions of the property being rented, as well as any furniture, fixtures, and other amenities provided.

More than just a stack of paperwork, a tenancy agreement serves as a written record of everything that both the tenant and landlord have agreed upon. It ensures clarity and helps avoid misunderstandings by documenting the terms and conditions of the rental arrangement.

To make the agreement comprehensive and fair, landlords often engage an attorney to draft the document. Tenants, on the other hand, are encouraged to consult their own lawyer to review the contract, suggest revisions, and ensure they fully understand the terms before agreeing to the final version. Remember, a tenancy agreement is a formal legal document, so it should always be prepared and drafted by a qualified lawyer!

What should both parties include in their Rental Agreement?

A tenancy agreement should cover several key aspects to ensure clarity and avoid any confusion between the landlord and tenant. It’s important that each point is carefully worded to ensure the meaning is clear and precise. A well-drafted agreement will help protect both parties and prevent misunderstandings.

1. Parties Involved

To ensure clear identification and communication, the tenancy agreement should include the following details for both the landlord and tenant:

Full Names and Identification Details

• Include the full legal names of both parties, along with their identification numbers (e.g., IC for Malaysian citizens or passport number for foreign tenants). This helps verify the identity of each party involved.

Contact Information

• Make sure to provide up-to-date contact details, such as phone numbers and email addresses, for both the landlord and tenant. This ensures that both parties can easily reach each other for any communication during the tenancy.
  By clearly stating the names and contact information, you can avoid any potential confusion or issues in case communication is needed during the lease term.

2. Property Details

Start by clearly stating what kind of property is being rented and its location. For example, if it's a condominium, make sure to specify the unit number. Also, be clear about whether the entire property is being leased or just a part of it, like a room or a section of the house.

It’s also a good idea to mention the condition of the property. Is it fully furnished, or does it need some work? If the property comes with furniture and appliances, such as a refrigerator, air conditioning, or cookware, make sure to include an inventory list. Tenants should check and confirm the condition of these items before signing, ensuring both parties are in agreement.

By including these essential details in your rental agreement, both the landlord and tenant can have peace of mind throughout the lease.

2. Rental Amount and Deposits

One of the most important parts of the tenancy agreement is clearly stating the rental amount and how payments will be made. Here’s what to include:

• Monthly Rent: Specify the exact amount of rent the tenant needs to pay each month. Don’t forget to mention the due date for payment and the preferred payment method (e.g., cash, bank deposit, or wire transfer).
• Deposits: Indicate the amounts for the Earnest Deposit, Security Deposit, and Utility Deposit. The Earnest Deposit shows the tenant’s commitment to renting the property, while the Security Deposit covers any potential damage to the property. The Utility Deposit is typically used to cover outstanding utility bills. Be sure to clarify whether these deposits are refundable or not, and outline the conditions for refunding them at the end of the tenancy.

Including these payment terms helps prevent confusion and ensures both parties understand their financial responsibilities.

3. Tenancy Period and Renewal Option

The tenancy period is the fixed duration for which the tenant will be renting the property. When drafting the agreement, it’s important to be specific about the start and end dates of the rental period.

Tenancy Duration

• Most rental agreements are set on a yearly basis, with the most common durations being one, two, or three years. If the lease exceeds three years, it is generally considered a lease rather than a tenancy. For month-to-month rentals, make sure this is clearly stated in the agreement.

Start and End Dates

• Be sure to include the exact date the agreement is signed, the starting date of the rental period, and the date when the tenancy will end. This sets clear expectations for both parties.

Renewal Option

• Consider adding a clause that gives the tenant the option to renew or extend the tenancy for a specific period, subject to certain conditions. This provides flexibility and helps both parties plan for the future.

Including these details ensures both the landlord and tenant understand the duration of the agreement and any options for renewal.

4. Landlord’s Responsibilities

As a landlord, you have several important responsibilities to ensure the property is well-maintained and legally compliant. Here’s a breakdown of what you need to handle:

Property Maintenance

• The landlord is responsible for paying the annual property tax to the relevant authorities and keeping the property insured. It’s important to ensure that the property, including any furniture, fixtures, and appliances provided, is in good working condition.

Rental Income Tax

• Besides property tax, landlords must also be aware of rental income tax. This is a tax on the money you earn from renting out your property. Much like how you pay Real Property Gains Tax (RPGT) when selling a property, rental income is also taxable.

However, there’s some good news for landlords! You can claim a 50% income tax exemption on your rental income, provided you meet these criteria:

• The exemption applies only to residential properties.
• You must be a Malaysian resident individual.
• Your rental income must not exceed RM2,000 per month per property.
• The property is rented under a legal tenancy agreement between you and the tenant.
• The tax exemption is available for a maximum of three consecutive years of assessment.
• This exemption is effective for tenancies signed during the 2018-2020 assessment years.

By understanding and fulfilling your responsibilities as a landlord, you ensure both the property and your rental income are properly managed and compliant with local regulations.

5. Tenant’s Obligations

As a tenant, you also have a set of important responsibilities to uphold throughout the rental period. Here’s what’s typically expected of tenants:

Timely Payment of Rent and Utilities

Ensure that you pay the rent and any utility bills (such as water, electricity, and gas) on time, as agreed upon in the tenancy contract. Late payments can result in penalties or even eviction.

Property Maintenance

Take good care of the property, including the furniture, appliances, and interiors. If something breaks or becomes damaged, inform the landlord promptly. Regular upkeep is essential to ensure that everything remains in good working condition.

Reporting Issues and Defects

If you notice any structural problems or defects in the property, it’s your responsibility to inform the landlord immediately. This allows them to address the issue and prevent further damage.

Abiding by Rules and Regulations

Follow any additional rules outlined by the landlord or the building’s management (especially in condominiums or apartment complexes). This could include noise restrictions, parking rules, or guidelines on using shared facilities.

By fulfilling these obligations, you contribute to a smooth and respectful relationship with your landlord while ensuring that your living space remains safe and well-maintained.

6. House Rules, Prohibitions, and Limitations

To ensure that both parties have a clear understanding of what is and isn’t allowed, it’s important to outline the house rules, prohibitions, and limitations in the tenancy agreement. Here are some common terms that should be included:

Subletting Restrictions

• The tenant is usually not permitted to sublet the property or any part of it to a third party. This ensures that the landlord knows exactly who is occupying the property.

Use of Property

• The property should only be used for residential purposes. This means the tenant cannot operate a commercial business or engage in activities that would alter the property’s intended use.

Prohibited Activities

• Clearly ban any vices or illegal activities, such as gambling or the use of illegal drugs. Also, specify that the tenant cannot do anything that would jeopardize the property’s insurance coverage, such as causing significant damage or participating in dangerous activities.

Renovations and Alterations

• Tenants should be prohibited from making any renovations or alterations to the property without prior written consent from the landlord. This helps protect the property from unauthorized changes that could result in damage.

Occupancy Limits

• The landlord may set limitations on how many people can occupy the property. For example, the property may only be used by a single family or a specific number of individuals, ensuring that the space is not overcrowded.

By including these rules and restrictions, both the landlord and tenant can avoid potential issues and maintain a harmonious rental relationship.

7. How to Resolve Disputes

Even with a well-drafted tenancy agreement, disagreements can still arise between the landlord and tenant. This section outlines the dispute resolution process to address situations where issues are not clearly stated in the agreement or when there are misinterpretations or misunderstandings regarding certain terms or clauses.

Communication First

• The first step in resolving any dispute should always be open communication. Both parties should try to discuss the issue in a calm and respectful manner to understand each other’s perspective. Many issues can be resolved simply through a conversation.

Mediation

• If the issue cannot be resolved through direct communication, consider involving a neutral third party, such as a mediator, to facilitate a resolution. Mediation is often quicker and less expensive than going to court.

Legal Action

• If the dispute remains unresolved and cannot be mediated, the tenancy agreement should specify that either party can take legal action. This may involve going to a tribunal or court to have the dispute legally settled. It’s important to know that both parties will need to follow the legal process and may incur costs if the issue escalates.

By clearly outlining the dispute resolution process in the tenancy agreement, both the landlord and tenant can have peace of mind knowing how conflicts will be handled if they arise. This ensures that any issues can be addressed in a fair and efficient manner.

What Landlords Should Know

Being a landlord comes with important responsibilities to ensure a smooth rental experience for both you and your tenant. Here’s what you should keep in mind:

Keep the Place in Good Shape

• It’s your responsibility to ensure that the property is livable, safe, and well-maintained. This includes regular upkeep, addressing any repairs promptly, and making sure everything is in working order. A well-maintained property keeps tenants happy and reduces the risk of disputes.

Respect Privacy

• Respect your tenant’s privacy. Don’t show up unannounced or enter the property without proper notice. Unless there’s an emergency (like a water leak or a gas issue), you should give the tenant adequate notice before visiting the property. This is not just a courtesy, but a legal obligation in many cases.

Follow the Rules

• As a landlord, you must comply with local laws and regulations. This includes handling security deposits correctly, following the proper eviction procedures if necessary, and adhering to rental laws in your area. Avoid any actions that could be considered illegal or unfair, as they can lead to legal trouble and damage your reputation as a landlord.

By keeping these responsibilities in mind, you can ensure a positive rental experience for both you and your tenant, fostering a mutually respectful and professional relationship.

What Tenants Should Know

As a tenant, it’s important to understand your responsibilities to ensure a smooth and trouble-free rental experience. Here’s what you should keep in mind:

Pay Your Rent on Time

• Paying your rent on time is one of your most important duties as a tenant. Late payments can lead to penalties, strain your relationship with the landlord, and even result in eviction. Always keep track of the due dates and ensure timely payments.

Take Care of the Property

• Treat the rental property as if it were your own. Keep it clean and well-maintained, and avoid causing damage to the property. If something gets damaged, inform the landlord promptly so it can be repaired. Taking care of the property helps ensure a safe and comfortable living space and protects your security deposit.

Follow the Rules

• Stick to the terms of the tenancy agreement, whether it’s about having pets, making noise, or any other rules that were agreed upon. By following the house rules, you’ll avoid conflicts with your landlord and neighbors, ensuring a peaceful living environment for everyone.

By understanding and fulfilling these responsibilities, you can enjoy a positive tenancy and a good relationship with your landlord.

What are the Deposits Tenants Need to Pay and How Much Do They Cost?

When renting a property, tenants are typically required to pay a few types of deposits. These deposits protect the landlord and ensure the property is well-maintained during the tenancy. Here’s a breakdown of the common deposits tenants need to pay and their typical costs:

Earnest Deposit

This deposit shows the tenant’s commitment to renting the property. It’s usually paid when the tenant agrees to rent the property but before the tenancy agreement is signed.

• Amount: Typically one month’s rent.
• Purpose: To reserve the property and ensure the tenant is serious about the agreement.
• Refundable? Yes, but it may be forfeited if the tenant backs out after agreeing to rent.

Security Deposit

The security deposit protects the landlord in case of any damage to the property during the tenancy. It also covers unpaid rent or utility bills at the end of the tenancy.

• Amount: Usually equivalent to two months' rent.
• Purpose: To cover damages, outstanding rent, or other costs incurred during the lease.
• Refundable? Yes, provided there’s no damage or unpaid rent when the tenant moves out.

Utility Deposit

The utility deposit covers unpaid utility bills, such as electricity, water, and gas. This is often collected upfront to ensure the landlord is not left with unpaid bills when the tenant moves out.

• Amount: Typically one month’s rent or a fixed amount agreed upon by the landlord.
• Purpose: To cover any outstanding utility bills at the end of the tenancy.
• Refundable? Yes, if there are no outstanding utility charges.

Total Deposit Costs

In most cases, tenants will need to pay three deposits in total: the earnest deposit, security deposit, and utility deposit. For example, if the monthly rent is RM2,000, the total deposit could be RM5,000 (RM2,000 for the earnest deposit + RM4,000 for the security and utility deposits).

These deposits are usually paid at the start of the tenancy, and the terms of their refund (if applicable) should be outlined clearly in the tenancy agreement.

How Much Does the Stamp Duty for a Tenancy Agreement Cost?

In Malaysia, the stamp duty for a tenancy agreement is a legal requirement. It’s typically calculated based on the annual rent amount and is due to be paid within 30 days of signing the agreement. The stamp duty cost depends on the total value of the rental agreement, specifically the annual rent.

Stamp Duty for Tenancy Agreements in Malaysia

The stamp duty is imposed on tenancy agreements to give the contract legal validity. As per the Stamp Act 1949 (Amended), here’s how the stamp duty is calculated:

For Rent of RM2,400 or less per year

• Stamp Duty For Rent of RM2,400 or less per year: RM1
• This is for an annual rental fee of RM200 per month or less.

For Rent between RM2,400 and RM24,000 per year

• Stamp Duty For Rent between RM2,400 and RM24,000 per year: RM1 for every RM250 of the annual rent or part thereof.
• For example, if the annual rent is RM12,000 (RM1,000 per month), the stamp duty would be calculated as follows:
  RM12,000 ÷ RM250 = 48 (round up to the nearest whole number)
  48 x RM1 = RM48.

For Rent above RM24,000 per year

• Stamp Duty For Rent above RM24,000 per year: RM1 for every RM250 of the annual rent or part thereof, but the calculation is capped at RM1,000.
• For example, if the annual rent is RM36,000 (RM3,000 per month), the stamp duty would be calculated as:
  RM36,000 ÷ RM250 = 144 (round up to the nearest whole number)
  144 x RM1 = RM144 (However, since the stamp duty is capped at RM1,000, the cost would be RM1,000).

Other Article:

• Rental Agreements in Malaysia: Know about Rental Agreements
• 10 Things Tenants Want in a Rental Home
• Renting Houses in Malaysia: An Ultimate Guide