Recently, the local media have dedicated a substantial number of newsprint columns to comments by various stakeholders on the proposed Residential Tenancies Act (‘the Proposed Act’).
The Proposed Act has been mooted as Action Plan 2.3.1 of the National Housing Policy (2018-2025) which seeks to introduce a comprehensive law to safeguard the interests of property owners as well as tenants.
The Ministry of Housing and Local Government (‘the Ministry’) has conducted extensive engagements, consultations and focus group discussions with various stakeholders since 2018, leading to the issuance of the Regulatory Impact Statement on the Proposed Research and Drafting of the Residential Tenancies Act
1 (‘Impact Statement’).
According to the Impact Statement, the Proposed Act is modelled after the Residential Tenancies Act 2010 of New South Wales, Australia and is subject to the Malaysian legal system and local requirements. The Proposed Act will apply only to Peninsular Malaysia.
Based on the Impact Statement, we highlight 10 noteworthy points on the Proposed Act.
1. Framework to regulate residential tenancies
The Proposed Act will introduce a new framework to regulate residential tenancies. An Office of the Controller of Residential Tenancies (Pejabat Pengawal Sewaan Kediaman) (‘the Controller’) will be established by the Ministry to administer the Proposed Act and carry out the functions conferred on the Controller under the Proposed Act. Deputy Controllers and other officers will also be appointed under the Proposed Act.
2. What is a ‘residential property’?
According to the Impact Statement, a ‘residential property’ refers to ‘
any premises used or intended for use solely for residential purposes and which is not used for trade, business, manufacturing or industrial purposes and such other type of accommodation as may be prescribed by the Minister from time to time to be a residential premise.’
The Proposed Act will include provisions that exempt certain premises and agreements from its purview. Based on the Impact Statement, student hostels, workers’ accommodation provided by an employer, and short-term rental agreements will be excluded from the Proposed Act.
It is unclear whether the Proposed Act will apply to a Small Office Home Office (SOHO) or properties under Rent-to-Own Schemes.
3. Standard Form Tenancy Agreement
It will be compulsory for the letting of all residential properties falling within the ambit of the Proposed Act to be governed by a standard form tenancy agreement (‘standard form agreement’) that, according to the Ministry, will safeguard the interests of the property owner and the tenant.
The standard form agreement will, among others, set out clearly the rights and obligations of the property owner and the tenant. For example, the tenant will be prohibited from subletting the premises without the prior consent of the property owner, while the property owner will be prohibited from increasing rent during the term of the tenancy except in accordance with the provisions in the standard form agreement.
4. Security Deposits
Based on the Impact Statement, the amount of security deposits comprising rental deposit and utilities deposit in respect of a tenancy of a residential property will be regulated under the Proposed Act. Rental deposit will be capped at an amount equal to two months’ rent while utilities deposit will be an amount equal to one month’s rent. These amounts are in line with current market practice.
It will be interesting to see whether the standard form agreement allows the rental deposit and utilities deposit to be used interchangeably, and the procedure applicable to their use.
The major departure from current practice is that the property owner will be required under the Proposed Act to place the security deposits in a special account established by the Controller. The Controller is to return the security deposits to the tenant upon termination of the tenancy agreement if there are no expenses to be set-off against the deposits. Interest accrued on the security deposits will be used to fund the Tribunal (as defined below) and to defray the costs of operation and administration of the Proposed Act and the Controller. Any disputes arising in relation to the security deposits may be referred to the Tribunal for resolution.
This proposal has met with resistance from several stakeholders who have advocated that the security deposits be maintained by the property owners as the deposits may be urgently required for repairs to the rented premises due to damage caused by the tenant. Reservations have also been expressed that interest on the security deposits will not accrue for the benefit of the tenant or the property owner whilst the same is held by the Controller.
According to the Ministry, one of the common disputes is the reluctance of property owners to refund the security deposits although there are no arrears of rent owed, or damage caused to the premises by the tenant. The placement of the security deposits with the Controller will hopefully overcome this problem.
5. Establishment of the Residential Tenancies Tribunal
An independent quasi-judicial body, the Residential Tenancies Tribunal (‘Tribunal’), will be established under the Proposed Act. The Tribunal will be conferred jurisdiction to hear, investigate and resolve disputes in relation to residential tenancies, such as disputes relating to rent, rental rate, the terms of the tenancy agreement, the return of security deposit, and eviction of a tenant from the rented premises.
The Tribunal will provide an avenue for the parties to a residential tenancy to resolve their disputes in an expeditious and cost-efficient manner. It is envisaged that disputes brought before the Tribunal will be resolved within 120 working days. It has been observed in the course of public consultation that the provisions in the Proposed Act relating to the Tribunal are based on the Strata Management Tribunal established under the Strata Management Act 2013.
The decision of the Tribunal is final and may only be challenged on grounds of serious irregularity.
It also appears that the jurisdiction of the Tribunal is limited to claims not exceeding RM25,000 and that a proposal has been put forward for such jurisdiction to be increased to RM50,000.
6. Repossession of rented premises
The Proposed Act will include provisions for the recovery of possession of the rented premises by the property owner and to prescribe the liability of a tenant who remains in possession of the rented premises after the termination of the tenancy agreement. Interestingly, it appears that the Proposed Act contains a provision that allows a person with superior title to initiate proceedings for the recovery of the rented premises.
7. Statutory offences
The Proposed Act will introduce a number of interesting statutory offences that seek to eliminate some of the common problems faced by property owners and tenants of a residential property.
In relation to the property owner, the statutory offences include:
8. Dealing with items left in the rented premises
The Proposed Act will also include provisions as to how the property owner is to deal with items that have been left in the rented premises by the tenant. These provisions are welcomed as they provide protection to a property owner who has complied with the relevant requirements in dealing with the said items.
9. Social housing tenancies
The Proposed Act will have bespoke provisions to address issues arising from social housing tenancies.
10. Enforcement date
According to the Impact Statement, the Proposed Act will be tabled before Parliament in July 2022 and if passed, will come into force in August 2023. A review will be conducted within 12 months before February 2028 to determine whether the provisions in the Act are to be amended or enhanced.
A ticklish issue
It has been reported that the Proposed Act contains a provision that prohibits a property owner from claiming rent for the unexpired term of the tenancy in the event of a breach of the tenancy agreement by the tenant. Certain quarters have commented that it is unjust that a defaulting tenant is given protection as it is the property owner who will suffer when a tenant is in breach.
In our view, a fairer approach would be to apply the general principles of damages in contractual transactions. This will enable a property owner who has taken reasonable steps to mitigate his losses to recover damages that will put him in the position that he would have been in if the contract had been performed. For example, if a property owner is able to let out the property for a monthly rent which is RM200 less than the rent payable by the tenant, he should be entitled to recover damages of RM200 per month for each month of the remaining tenure of the tenancy instead of the full amount of the monthly rent for the said period.
Comments
The Proposed Act appears to be a piece of comprehensive legislation that will address many existing weaknesses and gaps in residential tenancies in a manner that balances the rights of property owners and tenants
.
Advocates of the
laissez-faire economy and freedom of contract may lament governmental intervention in the rental of residential properties which are essentially commercial matters driven largely by market forces. However, the introduction of statutory offences for common problems, such as non-payment of rent and utilities charges and self-help remedies like changing the keys to the demised premises to deny access, are likely to raise the level of compliance by property owners and tenants with their respective obligations under tenancy agreements for residential properties in Malaysia.
Postscript
It has been reported that the Government is seeking more feedback on the Proposed Act before tabling it in Parliament, notwithstanding that the period for consultation has officially closed on 28 February 2022.
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Article by Jesy Ooi (Partner) and Tai Kean Lynn (Associate) of the Real Estate Practice and Kok Chee Kheong (Partner) of the Corporate Practice of Skrine.