Tenancy Agreement Extension: A Primer
In Malaysia, the commercial property rental landscape is traditionally dominated by long-term leases, with most commercial property rented for a duration of 3 years, 5 years or even 10 years. However, growing numbers of commercial tenants, particularly from the cluster of start-up businesses, require short-term tenancies and therefore tenancy agreements in Malaysia are increasingly entered into for a fixed term of 6 months, 9 months, 12 months or 18 months. An extension of a tenancy agreement is often required to maintain the status quo or give parties breathing space to make decisions on any further plan. As such, a large number of tenancies, commercial or otherwise, are extended after the expiry of the initial term. When a tenancy agreement is extended, an important aspect to consider is one of a standard form tenancy agreement versus a bespoke agreement. Standard form tenancy agreements are useful in that they are commonly understood but they are relatively generic and do not generally include specific provisions or key details which apply to individual situations. Tenants and landlords must review the standard form agreement carefully and decide which clauses are relevant to and protective of their own interests . For example, a tenant may have to negotiate with the landlord points such as the amount of rental deposit payable or when the rental is due. For landlords of residential properties, they must ensure that the Standard Form of Tenancy Agreement for Houses (or in Malay, the Licensed Form Tenancy Agreement for Houses) is appropriately modified to cater to the specific requirements of the parties. It should also be noted that under Malaysian law, a tenancy agreement not exceeding 3 years does not have to be registered under the National Land Code 1965 (Malaysia). However, if the tenancy is for more than 3 years, it must be registered otherwise it may not be enforceable against third parties. It is a common misconception that a tenancy must be stamped to be valid. As a result, most tenancies are usually not stamped and not registered. However, parties should be reminded that a tenancy agreement which is not stamped may not be admissible as evidence in Court if the same is being disputed. As such, a tenancy agreement which is not stamped clearly has a limited application but for the sake of certainty and protection, it is recommended that a tenancy agreement be duly stamped.
Tenancy Agreement Extensions – The Legal Aspect
The legalities associated with tenancy extension are not as clear cut when it comes to Malaysia. Unlike commercial tenancies, there aren’t too many legal requirements in registering a tenancy contract between two parties, aside from documentation such as the property title deed. Legal issues arise either when one party does not live up to their commitments or when there is a dispute or demand for rights regarding the property.
Previously, agreements for tenancy were registered and recorded at the District Court Registry under the National Land Code (NLC). Thus, most landlords were unaware that their tenancy was extended and that their tenant was under no obligation to vacate or renegotiate at the end of the previous twelve months. Since the enactment of the National Land Code 1965 (Amendment) Act 2008, all such agreements are now unenforceable.
The new law does not specifically prohibit the recording of such agreements but it does empower a Registrar of Lands with the power to enter onto any land where an unauthorised tenancy agreement has been registered and to "do all things necessary to restore vacant possession of the land".
Knowing the laws and your rights as a tenant can help to alleviate problems when extending your tenancy. A better alternative to registering a tenancy agreement is to execute an agreement for lease which provides the parties with more rights in the event of a dispute.
Preparation of the Letter of Extension
The next stage is to draft the letter of extension which will outline the conditions and terms of the extension. This can follow many of the same stipulations of the original Tenancy Agreement with a few tweaks and amendments such as duration, rental amount, payment schedule, other costs, clauses for early cancellation, security deposit claimed and other relevant details. Any previous discrepancies or issues should be addressed and rectified in the new agreement to prevent them from occurring again. Areas of concern that may have arisen should also be included within the letter of extension. If a security deposit was not claimed previously, negotiate for this to be added. Finally, if a new date for contract termination is agreed, then the extension letter should be passed by both parties in agreement and signed below.
Letter of Extension – A Sample
If you are looking to extend your tenancy period, you will need to draft up a tenancy extension letter. Here is an example of a template you can use.
[Your name]
[Your address]
[Date]
[Landlord’s address]
Dearest [Landlord’s Name],
RE: TENANCY EXTENSION [Unit Name/Number]
As you know my tenancy period at [Unit Name/Number] ends on [expiry date]. I have enjoyed my time here very much and would love to continue living in the unit for the foreseeable future.
I would like to formally request that you extend my lease for an additional [number of months] as of [current date]. I am thankful for your consideration on this matter and look forward to hearing from you soon.
Regards,
[Your signature]
[Your name]
So we have broken down the tenancy extension letter into a few labelled parts for your reference:
This letter is simple to draft and you can fill in the blanks to suit your needs. Provide your landlord with as much notice as possible when you are planning an extension to a tenancy agreement.
Negotiating the Terms
As both the landlord and tenant are eager for the extension of the agreement to be mutually beneficial, negotiating terms may not be as difficult as you might expect. A strong basis for negotiations is an introductory discussion on the current market conditions with your real estate agent. As well as establishing the quality of your prospective tenants, a good agent will have their ear to the ground regarding rent pricing. The primary factor for landlords in selecting the balance between rental price and the length of agreement will be the avoidance of a loss incurred by frequent leasing , versus the risk of losing rental income through tenant vacancy. For tenants, the main aim is to ensure that they are not paying more for the extension than they would otherwise pay in the external market. The first step to successful negotiations is to provide the most recent agreement, along with a proposed term of extension, including a value for the new rent. You should then make yourself available to discuss the matter with your landlord or their agent, ensuring that you have considered the points noted above, as well as any other issues you may need to address in relation to the existing agreement.
Common Problems and Solutions
One of the most common hurdles faced when extending a tenancy agreement in Malaysia is determining the new rental amount. This can be a contentious issue, particularly if the landlord is seeking a substantial increase. The proposed new rental rate must be reasonable and justifiable, taking into consideration market trends, the condition of the property, and any improvements or facilities provided within the premises. Having comparable market data on recent transactions in the surrounding area can augment your bargaining power with the landlord. Another challenge that may arise if a dispute occurs is proving tenancy in an issue resolution forum such as the Tribunal for Homebuyer Claims (THC) or the court. A tenancy agreement is not required to be stamped and failure to do so may lead you to have to prove your tenancy via alternative evidence, such as monthly payment receipts, letters of tenancy, or utility bills addressed to you at the tenanted address. There are also a number of administration requirements, such as data entry into government online systems and real property gains tax (RPGT) filing post renewal. This might require you to commit additional time and bring the necessary documentation along such as copies of your new tenancy agreement, signed stamp paper, identification cards, details of the stamp duty payer, details of both landlord and tenant, information of the real property agent (if any), and particulars of the tenancy such as date of commencement and termination as well as rental amount. Assistance from a real property agent may be prudent in this regard.
Answers to Frequently Asked Questions on Tenancy Agreement Extension
Here are some common questions that arise when it comes to extending a tenancy agreement in Malaysia:
1. Can my landlord increase the rent when extending my tenancy?
If the tenancy agreement is silent as to any increase in rent, a landlord may increase the rent provided that a 30 days’ notice is issued by the landlord to the tenant. A notice period to increase the rent is not applicable if the tenancy agreement clearly sets a rent increase clause.
2. Must I continue to pay rent during the extension period?
If the landlord fails to extend the tenancy after being served with a notice of extension, the tenant is discharged from paying rent for the period of the extension, unless and until the tenancy is renewed .
3. Can a landlord terminate the tenancy before the end of the extended period?
It is at common law that the lease cannot be brought to an end prematurely unless there is a valid provision for earlier termination (for e.g. ‘break clauses’) or if the tenant waives the requirement for the landlord to give notice to quit. Common examples of breaking the lease before the expiry of the extended term would be failure to pay rent or allowing unsightly conditions of the property to persist.