Property
Residential Rent Act can see level playing field
Sonia Ramachandran 
High time for a Residential Rent Act, say experts
advertisement[x]

One of the more intriguing sound bites of Budget 2018 tabled by Prime Minister and Finance Minister Datuk Seri Najib Razak on Oct 27 was the proposed formulation of a Residential Rent Act to protect landlords and tenants.

This inevitably begs the questions: Aren’t our current laws sufficient to deal with such matter? What key provisions should this new Act contain?

Prior to the budget announcement, Second Finance Minister Datuk Seri Johari Abdul Ghani had said at the 20th National Housing & Property Summit 2017 that there is a value proposition to establish a rental law in Malaysia to develop a more robust housing rental market.

He said rental law is one of the suggestions put forward by Bank Negara Malaysia and this needs to be discussed with the Urban Wellbeing, Housing and Local Government Minister, and the Domestic Trade, Cooperatives and Consumerism Minister.

Property and legal experts say the proposed Act is timely, especially the establishment of a tribunal to resolve landlord and tenant disputes.

Ivan Chan, a partner of legal firm Amir Toh Francis & Partners, tells FocusM current laws in the country are insufficient to protect landlords and tenants.

He says a specific tenancy law is needed to create a level playing field to regulate the relationships between landlords and tenants in order to protect their respective interests and rights.

“The intervention of such a specific law will direct and guide both parties as to which contractual terms may be inserted into the tenancy agreement that will balance the inequality in their bargaining power, and thereby ensuring favourable protection for the parties concerned,” he says.

Ivan explains this is because a tenancy agreement is a contract between a landlord and a tenant which is governed by the provisions of the tenancy agreement.

“This means the rights and obligations of both parties depend on the terms and conditions of the tenancy agreement.

“This in turn means in the event there is a dispute between the landlord and the tenant, both parties will refer to the provisions of the tenancy agreement to address and hopefully be able to resolve the dispute, failing which the claimant party may refer the matter to the law courts for a decision.

“This may be costly and time consuming for the litigants,” he adds.

Who decides what terms and conditions are to be inserted into the tenancy agreement?

“The doctrine of freedom of contract will allow both the landlord and the tenant to provide for the terms and conditions that will govern their relationship under the tenancy agreement.

“The party who has superior bargaining power will be able to insert such terms and conditions to protect his interest and rights under the tenancy agreement.

“The interest and rights of the party with less bargaining power may not be well protected,” says Ivan, adding this problem arises when there is no level playing field.

The Act can incorporate decisions and elements from case laws and views from practitioners in the property industry, says Siders

PPC International managing director Datuk Siders Sittampalam says the Act for landlords and tenants “is long overdue”.

He adds in the absence of such an Act, case laws are usually relied upon. Such laws are established by judicial decisions in cases in contrast to those formulated by legislation.

Hartamas Real Estate Group associate director Christopher Chan agrees such an Act is timely and necessary.

Christopher, who is also Malaysian Institute of Estate Agents Membership Benefit Chair director, says the Act should provide a standardised framework for both landlords and tenants to abide by.

“The standard terms should be deemed to be incorporated into tenancy agreements irrespective of whether they are explicitly mentioned in the agreement or not,” he says.

The proposed Act can provide a standardised framework for landlords and tenants, says Christopher

Security deposit

Ivan points out a tenancy agreement commonly provides for a security deposit, usually comprising a two-month rental to be paid by the tenant to the landlord to secure the tenant’s due observance and performance of the tenancy agreement.

“The security deposit shall not be treated or set off as payment towards rental, and will be refunded to the tenant upon the termination of the tenancy agreement, provided that the tenant shall have duly observed and performed all the covenants of the tenant in the tenancy agreement.

“However, despite what has been contracted between the parties, it is not uncommon in practice for the tenant to set off the security deposit towards account of payment of rental,” he says.

He points out that such a practice by the tenant nullifies the purpose of collecting the security deposit as the landlord would eventually not be able to retain and use the security deposit to remedy any breaches by the tenant in observing and performing any of the tenancy agreement covenants.

Ivan feels there is a need for a public register of landlords and tenants

However, Ivan admits there are times when a tenant may face difficulty in getting back the security deposit from the landlord on expiry of the tenancy even if he feels he has observed all the covenants under the agreement.

“But the landlord may be of the opinion the premises have been damaged by the tenant and therefore retains the security deposit.

“When both parties are not in agreement and have conflicting views, it may lead to delays in refunding the security deposit, if at all it is refunded.

“There have been occasions when the tenant has to write off the security deposit refund,” he adds.

 

Evictions

Then there is also the problem of evictions. Ivan says there are instances where tenants refuse to vacate the premises after the tenancy agreement has expired or terminated.

“A landlord may commence legal action in court against the tenant to obtain a court order to evict him,” he says, which will involve court action, procedures, money and time.

PPC’s Siders agrees this is a big issue in Malaysia as there is no specific law on eviction.

According to Hartamas Real Estate Group’s Christopher, it would take about seven months from the beginning of the case to retaking possession of the property plus proceeding costs of about RM10,000, provided the case is not contested by the tenant.

 

Landlord and Tenant Tribunal

Ivan feels the Act should establish a Landlord and Tenant Tribunal to resolve disputes between landlords and tenants at an affordable cost modelled along the lines of the Strata Management Tribunal set up under the Strata Management Act 2013.

“This will be a step towards efficient, cheap and speedy justice instead of going to court which may be costly and time consuming,” he says.

Home Buyers Claims Tribunal president and lawyer Datuk Pretam Singh says the tribunal is the way forward to address problems between landlord and tenants.

“Most tenants will vouch on the difficulty of getting back their deposits from recalcitrant landlords. The landlords, on the other hand, will scream out as to the number of times that tenants move out without paying rentals and utility bills.

“Therefore there is an urgent need to have an easy dispute resolution mechanism by way of a Landlord and Tenant Tribunal,” he says.

PPC’s Siders, however, feels there are too many tribunals in the country, and suggests incorporating landlord and tenancy disputes within the Home Buyers Claims Tribunal.

Alternatively, he suggests the Act includes an arbitration clause for tenancy agreements.

“I am sure the government cannot go on creating tribunals unless there are so many disputes, specifically on tenant/landlord issues, that you need to create a specific tribunal for that,” he says.

Ivan agrees with Second Finance Minister Johari’s suggestion that the Act should also establish a neutral third-party mechanism to hold a tenant’s security deposit to permit the landlord to use it in the event the tenant breaches the tenancy agreement.

“At the same time, the security deposit shall be refunded to the tenant upon the expiry of the tenancy agreement subject to due observance and performance of the tenant’s covenants,” he says.

In addition, Ivan says the Act should also impose a legal and contractual obligation on the landlord to ensure a property put up for rent meets a minimum physical standard.

He says the Act should also provide that local authorities prepare and maintain a public register of all landlords and tenants within their jurisdictions. “Once registered, the landlord has a duty to ensure the information he has provided is kept up-to-date.

“A landlord who lets a property without being registered commits an offence punishable with a fine,” says Ivan, adding any property listed for rent should also be listed on the register.

He says the public register for tenants will be used as a reference database to enable landlords to vet prospective tenants prior to entering into a landlord-tenant relationship.

Hartamas Real Estate Group’s Christopher also proposes that the government set up a National Tenancy Database for landlords and registered estate agents to check on the background of prospective tenants.

“Information such as identity verification, tenant blacklist screening, bankruptcy and court record checks should be made available.

“The setting up and legal structure of the database should be provided for in the Residential Rent Act,” he says.

The database, Christopher adds, will provide landlords better information to decide whether to accept prospective tenants.

“Presently, landlords do not have many options available to obtain this type of information from prospective tenants. This can be very frustrating,” he says.

However, a property observer notes an alternative to that would be credit bureaus or reporting agencies such as CTOS, RAM Holdings Bhd and Credit Bureau Malaysia Sdn Bhd, which can also be used for tenant vetting.

Such services are chargeable, but a government agency could provide them free of charge or at a nominal fee.

 

Judicial precedents

PPC’s Siders feels that judicial precedents should be looked at to identify areas that the Act should cover or incorporate. “Look at disputes that have come before the courts.

“The Act can incorporate decisions and elements from these case laws and views from practitioners in the property industry,” says Siders, who is also immediate past president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia.

He says the most important aspects to be looked at are the rights and duties of landlords and tenants as well as evictions.

Ivan feels the Act should fall under the purview of the Urban Wellbeing, Housing and Local Government Ministry.

“Tenancy matters ought to be a sub-set of housing law so as to receive favourable treatment by the government.

“The ministry has the expertise and resources to develop and maintain programmes to provide housing accommodation which should include regulation of the residential rental industry as the average Malaysian may not be able to afford to buy houses due to rising prices,” he says.

Christopher concurs with Ivan.

 “This is because one of the roles and functions of the Act is to regulate aspects of private housing development and management of residential strata as well as solving housing disputes,” he says.

Siders says the tribunal could also fall under the purview of the Finance Ministry, just like the Valuation and Property Services Department as well as the National Property Information Centre.

What the Residential Rent Act should include

• Landlord and Tenant Tribunal to resolve disputes between landlords and tenants

•  Mediation clauses

•  National Tenancy Database

• Public register of landlords

•  Neutral third-party mechanism to hold tenants’ security deposits

•  Meaning of a residential tenancy agreement – Who is a tenant? Who is a landlord? What is a residential tenancy agreement?

•  Terms of tenancy agreements

•  Pre-contractual obligations: compliance; tenant’s and landlord’s obligations.

•  Termination of residential tenancy agreements

•  Rental rate increases – standard residential tenancy terms



This article first appeared in Focus Malaysia Issue 262.