Sneak Peek

Oon Hooi Lin and Melody Ngai explore some possible features of Malaysia’s proposed new tenancy law.
Earlier this year, it was reported that the Ministry of Housing and Local Government of Malaysia was in the midst of drafting a proposed Residential Tenancy Act (“Proposed Act”). According to the Senior Principal Assistant Director of the National Housing Department, the Proposed Act is expected to be presented to the Malaysian Parliament in 2020.  
As it currently stands, Malaysia, unlike several of its commonwealth counterparts, such as the United Kingdom (“UK”), Australia, New Zealand and Canada, does not have a distinct piece of legislation that regulates tenancies and the relationship between landlords and tenants. Instead, tenancies in Malaysia are mainly governed by the law of contracts and common law, and in legislation such as the National Land Code 1965 (“NLC”), Civil Law Act 1956 (“CLA”), Distress Act 1951 (“DA”) and Specific Relief Act 1950 (“SRA”), albeit these legislation deal with specific issues on tenancies only on a piecemeal basis.
(Un)affordability of rental rates
The value of properties in certain locations such as the Klang Valley and Georgetown, Penang is notoriously high. This has resulted in landlords seeking higher rental to defray the cost of financing their purchase of such costly properties. Many tenants, especially those from the B40 and M40 groups (i.e. the lower and middle income groups that each represents about 40% of the country’s population) cannot afford to rent properties at such high rentals. The unaffordability of rental rates has hindered the growth of the residential rental market and resulted in a glut of vacant properties in the country.
Lack of control of security deposits
The common deposits required to be paid by a tenant to a landlord under a tenancy agreement are the security deposit and utilities deposit. A security deposit of an amount equal to two months’ rent and a utilities deposit of an amount equal to one month’s rent are the norm. However, as there is no statutory control over residential tenancies, a landlord who has greater bargaining power may take advantage of his position to impose higher rates of deposits on the tenant.
The main purpose of holding security and utilities deposits is to enable the landlord to set off any arrears in payment by the tenant and to remedy any damage to the premises caused by the tenant. Most tenancy agreements would require the landlord to refund the security deposit and utilities deposit to the tenant at the determination of the tenancy after deducting all costs, expenses and charges liable to be paid by the tenant under the agreement. However, some tenants would circumvent this by utilising the deposits as the last two or three months’ rent by not paying the rent for those few months and vacating the premises without notice to the landlord, thereby defeating the purpose of such deposits. The converse problem arises when a landlord forfeits or refuses to refund the deposits to the tenant at the end of the tenancy without basis.
Lack of regulation on terms of the tenancy agreement
In Malaysia, landlords and tenants in private residential tenancies derive their rights and obligations primarily from the terms set out in the respective tenancy agreements entered into between the parties. Parties under a private residential tenancy may face difficulties in proving and enforcing such rights and obligations in instances where the tenancy agreement is concluded orally or is poorly drafted. Similarly, as the agreement is created based on the principle of freedom of contract, this may create a problem when the landlord and the tenant are not on equal footing in terms of bargaining power and either party enters into the agreement out of desperation. 
Inadequacy of legal protection
Under the current laws in Malaysia, there is no special infrastructure or mechanism to resolve disputes arising from the landlord and tenant relationship except through the usual court procedure which can be costly and time consuming.
A landlord can rely on Section 28(4)(a) of the CLA to charge his tenant double rent for the period the tenant holds over the premises after the expiration of the tenancy. However, the landlord is not able to evict the tenant if the tenant continues to hold over or refuses to vacate the premises after the determination of the tenancy unless the landlord obtains an order from the court to recover possession of the premises pursuant to Section 7 of the SRA. From the tenant’s perspective therefore, Section 7 of the SRA is a protection conferred on tenants under the law. 
If a tenant defaults in rent payments, the landlord may rely on the DA to recover the rent arrears by way of writ of distress where the assets of the tenant within the rented premises may be seized and auctioned to recover the arrears in rent. Unfortunately, a distress action does not automatically terminate the tenancy and thus the tenant can continue to occupy the premises even after the distress action and the landlord will face a similar problem when the tenant defaults again. The landlord may however recover possession of the premises under the DA if the same has been abandoned by the tenant and there are insufficient assets left thereon from which arrears of rent may be recovered by distress.    
The Proposed Act is reported to be modelled after similar acts in two Australian states, namely the Residential Tenancies Act 2010 (“NSW Act”) of New South Wales (“NSW”) and the Residential Tenancies Act 1997 (“Victorian Act”) of Victoria, but will be tailored to suit the local context. In this article, we will examine some of the features of the NSW Act and Victorian Act as well as some aspects of the relevant laws in the UK to have an insight as to what the Proposed Act may encompass in light of the prevailing issues concerning residential tenancies in Malaysia.
Residential properties
The NSW Act covers tenancy agreements in respect of residential premises including social housing tenancy agreements and agreements or arrangements under which a person is given the right to occupy premises in return for carrying out work in connection with the premises or the person’s employment. However, the NSW Act specifically excludes, inter alia, service apartments, premises used mostly for trade, profession or business, and agreements giving the right to occupy residential premises for no more than three months for a holiday.
Similarly, the Victorian Act applies to private rental tenancies, social housing tenancies as well as tenancies in respect of premises used primarily for residential purposes even if a trade, profession or business is also carried on by the tenant in those premises. The Victorian Act does not apply to tenancy agreements where the premises are ordinarily used for holiday purposes and tenancy agreements arising out of the terms of an employment contract (as opposed to the NSW Act).
It is not known at this juncture whether the Proposed Act will cover only private residential tenancies or will be extended to public residential tenancies as per the social housing tenancies under the NSW Act and the Victorian Act. The Proposed Act could also cover public housing or properties subject to government schemes such as Rumah Mampu Milik Wilayah Persekutuan (RUMAWIP), Rumah Selangorku and Projek Perumahan Rakyat Dimilik provided that there is no restriction in renting out the properties or such moratorium has lapsed under the relevant scheme.
It also remains to be seen whether tenancies arising from any employment contract or caretaker arrangement and tenancies in respect of properties such as service apartments, small office home offices (SOHO), Airbnb and homestays will be subject to the Proposed Act as they are partly for commercial purposes.
Rent regulation
Tenants in NSW and Victoria may apply to the NSW Civil and Administrative Tribunal (“NCAT”) and the Director of Consumer Affairs Victoria respectively to review the rent payable or any rent increase if they think that the rent or the increase in rent is excessive. Both the NSW Act and the Victorian Act require landlords to give their tenants at least 60 days’ written notice of the rent increase and prohibit landlords from increasing the rent before the determination of a fixed term agreement unless the agreement provides otherwise.
The Victorian Act also limits the frequency of rent increases to no more than once per year. It is also worth noting that in Victoria, a tenant who is awaiting repairs of the premises by the landlord may pay rent into the Rent Special Account for a period specified by the Victorian Civil and Administrative Tribunal (“VCAT”) pending completion of the repairs.
In our view, the Proposed Act should regulate rent increase and the frequency of such increase and provide tenants with an avenue to review the rent. Proper guidelines on determination of rent should also be prescribed in the Proposed Act and factors such as the general market level of rents for comparable premises in the locality or a similar locality, the landlord’s outgoings under the tenancy agreement, and fittings, appliances or other goods, services or facilities provided with the premises (which are typically considered by the NCAT in determining whether a rent or rent increase is excessive) are good reference points. Trust account arrangements like the Special Rent Account under the Victorian Act should be adopted as they may compel a landlord to undertake repairs expeditiously. They will also protect the tenants’ interest by allowing tenants to indirectly withhold rent without being in breach of the tenancy agreement while awaiting repairs to the premises.
Security deposits and advance rents
In NSW, the amount of a rental bond which a landlord can collect from a tenant must not exceed four weeks’ rent. The bond must be deposited with the Commissioner for Fair Trading. Any advance rent required by the landlord from the tenant must not exceed two weeks’ rent unless the tenant agrees to pay more. The Victorian Act also imposes a duty on landlords to pay any rental bonds collected from their tenants to the Residential Tenancies Bond Authority within 10 days of receipt and limits the amount of a rental bond to one month’s rent with an exception for high value properties or unless approved by the VCAT.
Likewise, the UK’s Tenant Fees Act 2019 (“TFA”) caps the amount of a tenancy deposit at five weeks’ rent (where annual rent is less than £50,000) or six weeks’ rent (where annual rent is more than £50,000). Under the TFA, it is mandatory for landlords to deposit the tenancy deposits under a government-backed tenancy deposit scheme for assured shorthold tenancies.
The Proposed Act should regulate the amount of security and utilities deposits and advance rents that a landlord can impose on a tenant. An independent governmental agency should be established to hold the security and utilities deposits and other types of deposit (if any) in escrow for the landlord and tenant of a residential tenancy and provide for the release of the same to the relevant party in accordance with the tenancy agreement in line with the NSW Act, the Victorian Act and the TFA.
Prescription of fundamental terms
The NSW Act and the Victorian Act each provides a standard tenancy agreement which incorporates most of the rights and obligations of landlords and tenants stipulated in the respective acts. Similarly, the UK government has made available a model tenancy agreement to the public. Regardless of whether this requirement to adopt a standard tenancy agreement is followed under the Proposed Act, it is in the interest of all concerned that the general terms and fundamental rights and obligations of landlords and tenants are clearly stipulated in the Proposed Act. Towards this end, the implied terms set out in Sections 230 to 233 of the NLC for leases and sub-leases can be adopted. There should also be a requirement for every tenancy agreement and any variation thereto to be made in writing and signed by both parties.
Dispute Resolution Mechanism
A special tribunal having similar functions and powers as the VCAT and the NCAT should be set up to resolve disputes between landlords and tenants in a timely and cost-efficient manner. Such tribunal should be given powers to make all orders that could typically be made by the courts in relation to tenancy matters, such as orders to restrain any action in breach of a residential tenancy agreement, or compel performance of the terms of a residential tenancy agreement, or for payment or refund of money or compensation. Several tenancy deposit protection schemes in England, namely the Tenancy Deposit Scheme, MyDeposits and the Deposit Protection Service, also make available to their landlord and tenant users free dispute resolution services for tenancy deposit.
Termination of tenancy
Under the NSW Act, the landlord cannot terminate a tenancy without grounds before the end of the fixed term and if the tenancy is not terminated at the end of the tenancy, it will continue as a periodic tenancy. If the landlord wishes to terminate the tenancy at the end of the fixed term, the landlord must give at least 30 days’ notice (90 days’ notice in the case of a periodic tenancy) with an exception of a tenancy where the tenant has been in continual possession of the premises for a period of 20 years or more and the tenure of the original fixed term agreement has ended; in this situation, the landlord may apply to the NCAT for a termination order together with an order for possession of the premises without serving a termination notice on the tenant.
In Victoria, it is mandatory for the landlord to give the tenant a valid notice to vacate and the notice period depends on grounds of termination and whether the tenancy is a fixed-term tenancy or a periodic tenancy.
Similar to Malaysia, tenants in NSW, Victoria and the UK are protected from being evicted from the premises (even after the expiry of the deadline to vacate premises specified in the notice) unless and until the landlord has obtained a possession order either from the NCAT, the VCAT or the court (for tenancies in the UK).
It is recommended that all the remedies for landlords and tenants including but not limited to those set out in the NLC, SRA, CLA and DA should be consolidated under the Proposed Act and the termination period for different circumstances should also be set out therein.  
Levy on vacant premises
To encourage owners to rent out their vacant properties, the UK government can impose a charge of up to an amount that is twice the council tax payable if a property has been vacant for two years or more unless the property is an annexe or the owner is in the armed forces. The Malaysian Government could adopt a similar approach in order to boost the rental market for residential properties.
It is the writers’ opinion that the current landscape of the rental market in Malaysia is neither pro-landlord nor pro-tenant and may vary according to the circumstances. As mentioned earlier, the existing laws that govern tenancies are piecemeal and found in different legislation such as the NLC, CLA, DA and SRA. Thus, the introduction of a holistic piece of legislation that governs all aspects of residential tenancies and safeguards the interest of both landlords and tenants is long overdue and should be welcomed by all stakeholders.

You may view the full issue of Skrine’s Legal Insights Issue 3/2019 here.