Sometimes, things don’t work out as planned. One day you are determined you have found the right place, and the next you realize that things have unpredictably changed. This also happens to tenants who have signed a legally binding contract called Tenancy Agreement in which they agreed to rent a place in a certain period, only to have the arrangement prematurely ended for whatever reason. On the other hand, some tenants did not expect their stay to be longer, thus, putting aside other rental options and choosing to stay where they are. In these cases, tenants can either terminate or renew their tenancy agreement. After all, a tenancy has to come to an end. So before it does, ask yourself; do you want to leave early or extend your tenancy? Continue reading to understand how early termination and renewal of a tenancy works.
Tenancy agreement: what should be included
A tenancy agreement is a contract between a tenant and a landlord that spells out all of the crucial details of the agreement. This comprises the length of the tenancy, the monthly rate, the payment method, and a full description of the property being rented out. You can read in detail on Tenancy Agreement here.
But to summarize, here's a more comprehensive list of what should be included in a tenancy agreement:
- Property information
- Tenancy period
- Monthly rental fee
- Renewal clause
- Deposits amount
- Rent due date and payment method
- Obligations of landlord and tenant
- List of items/furnishings provided by landlord
- House rules: Do’s and Don’ts
- Terms and conditions on deposits return
- Terms and conditions on subletting/adding tenants
- Utility bill and property tax obligations
- How to resolve disputes
- Early termination of tenancy
- Special clauses (pets, smoking, partying and other rules)
Early Termination of Tenancy
A default clause on termination is typically included in most tenancy agreements. Most termination clauses would not allow you to end the tenancy during the first year; if you choose to cancel the tenancy before the first year ends, your security deposit will be forfeited. Some stipulations may even oblige you to pay your landlord for the months left on your tenancy agreement.
The best time for early termination
Early termination of the tenancy agreement is justifiable under some circumstances.
The expat clause is particularly common among expats renting in Malaysia in the event that they have to move back to their country by their employers. Termination after a year of renting is generally allowed under this condition; however, it can differ with each landlord. In essence, diplomatic clauses allow you to quit a contract early if your employer relocates you or if you are no longer able to work in the country or state.
This condition allows you to sign a tenancy agreement even if you don't know how long it will be until you have to move again. But it also outlines the steps you must take to notify your landlord of your intention to vacate the property.
In most cases, however, the terms are only enforceable once a year of stay has passed (but this is also negotiable). In the event that you are relocated within the first year of your tenancy, you may not be eligible for this provision. You'll need to check the termination clause to determine whether you may get out early. This one-year timeframe was set in place for the landlord to recoup the money he has paid any real estate agent.
When you’ve found a tenant to replace you
Most of the time, tenants have the option to end their contract early if they can find a new tenant to take their place. This is because when you found a replacement, the landlord won't have to spend any more money looking for a new renter when you leave earlier than promised.
Failure to adhere to the agreement terms
Landlords and tenants have the legal rights to cancel their contracts if one party breaks any agreement. For example, when a landlord changes the conditions of payment or neglects their duty towards the home maintenance or even renovates the property, they are breaching the contract. So any tenant who is no longer keen to stay can use this to their advantage.
When signing a tenancy agreement, make sure that these situations above are included and discussed beforehand.
Risk of early termination
The tenancy agreement, which controls both parties' contractual duties, is the primary point of reference. Contrary to common opinion, each tenancy agreement is unique, and the terms of the agreement may range considerably. That’s why it’s important to read the content of the agreement thoroughly.
Keeping that in mind, the following are the risks for ending a tenancy early as it is a form of breach:
Pay full rent under expat clause
There may be a condition in the tenancy agreement that allows a landlord to collect the full rent for any unexpired time. This is often the case of expatriates working and living in Malaysia that have signed a tenancy agreement with the expat clause included. As mentioned previously, an expat clause that lets you cancel a tenancy before the agreed-upon duration is only enforceable after a minimum period of one-year residency.
Forfeiture of deposits
The most immediate consequence of a tenant's early termination is the forfeiture of all deposits, including that of utility. The landlord's power to forfeit deposits is not without deliberation, and it should be explicitly stated in the agreement.
How to terminate a tenancy early
Regardless of the reason for your termination, you must inform your landlord in writing about the early termination. Sending the termination letter 30 days in advance is the norm, but it would be better if you can send it earlier, perhaps 60 days prior.
The letter of termination by the tenant, also called a tenant’s notice, serves to terminate the tenancy and should include these details:
- The intention to terminate
- Date of termination
- Reference to the termination clause in the tenancy agreement
- Reason of termination (in cases of contract breach)
- Date of property handover
- Settlement of any penalties
- Contact details
- Letter from employer (in cases of transfer to another country)
- Details of tenant replacement, if any
Renewal of Tenancy
When your first rental term expires, you may have the option to renew your contract by signing a new agreement. Rent renewal is an option if you enjoy your existing rental and don't want to go through the hassle of looking for a new one. Your landlord will also appreciate not having to go through the time-consuming process of finding a new renter and doing a background check on a new applicant. You can then begin discussions about renewing your tenancy.
Please keep in mind that you must begin the process of renewing your rental agreement at least 60 days before your current agreement expires. This means in order to renew your contract you need to give notice to the landlord around 2 months before the expiry date. If you wait to do so after the date, then you would have to be staying elsewhere until the new rental tenancy is in place.
It is essential for the landlord and the tenant to clearly define the terms of the tenancy agreement in order to achieve a successful transaction. It is also necessary to specify the duration and the term. The tenancy is often a year-to-year arrangement. As a result, the number of months will not be used in the calculation.
By the way, any rental for a period of more than 3 years is no longer a tenancy but a lease.
However, if a landowner chooses to rent on a monthly basis, remember to include that piece of information in the tenancy agreement. In addition, the contract should also include the date the contract is signed along with the start and end dates of the renting period.
What else? Make sure that the tenant's right to renew the tenancy is stated in the agreement so when it comes down to it, you should be able to do so - as agreed. Subject to the renewal clauses in the tenancy agreement, the landlord or tenant may choose to renew the tenancy under the same terms and conditions.
Should you renew your tenancy agreement?
That depends on your priority. If you are required to relocate or there are better areas or homes out there for you, then it would make sense to move on. But if things seem to be working out just fine, then you and the landlord may be looking at a better option that can benefit both of you. Let's look at it from the perspectives of the renters and the landlord.
Okay, let’s pretend that you have been staying in a home and choose not to renew your tenancy after it expire. From here, you will need to begin looking for a new rental home as soon as your present contract expires in order to avoid eviction. What’s with the tight deadline? What’s the rush?
Well, as soon as the tenancy expires, there is no longer any security guaranteed on the landlord's side for the remainder of the time period in question. Any damages suffered by the landlord beyond the tenancy expiration are considered to be his responsibility. Given that the landlord is not covered by insurance in this situation, the landlord has every right to proceed with the eviction procedure.
We are all aware that browsing through rental properties for the perfect one takes a significant amount of time, and that once you have found a property, you will need to spend further time discussing and negotiating the tenancy agreement. After that’s being taken care of, you will have to deal with the process of moving out, which will necessitate the preparation of more funds, particularly if you are employing a moving company.
However, if you decide to extend the tenancy, you won’t have to worry about all the efforts, time and costs it takes to move out. Plus, if the landlord knows that you have paid on time, have not caused any issues and have been taking excellent care of their property, you can negotiate the current rent prices and there is a chance that he will grant your request. Read this article to learn more about negotiating rent.
For their part, landlords must find and wait for the next tenant to book their home. Afterwards, they must filter out the tenants by screening them one by one, which can be a time-consuming process. After the tenant screening process is completed, the landlord and the candidate must still discuss a new tenancy agreement; now they are back to square one. Overall, tenancy renewal is preferable for both parties since it requires less effort and costs less money.
How to renew the tenancy agreement
Renewing your tenancy agreement can basically be about renegotiating your existing agreement. Keep in mind that an oral agreement will not be deemed binding, so make sure you obtain everything in writing. This is the stage at which renters and landlords may begin fine-tuning their tenancy terms and correcting gaps that they have most likely uncovered in the prior tenancy agreement.
It’s easier now as both the landlord and the tenant have familiarized themselves with each other so they can adhere to the policy and preferences among both parties. This enables you to have the ability to negotiate rental pricing, tenant and landlord responsibilities, and even the tenancy duration if you wish to stay for a longer or shorter period of time than the prior agreement.
The process is similar to the previous one where you first discussed the tenancy agreement prior to moving in. As it is a renewal of the tenancy, the basic requirements are the same, from having the renters pay all of the required deposits to paying for the stamp duty and other fees. Once this is done, the landlord will need to submit the agreement to Lembaga Hasil Dalam Negeri Malaysia (LHDN) in order for the new tenancy to be legally implemented.
Read here on how the tenancy agreement is drafted.
It’s important to decide how long you would be staying before renting a home. However, as mentioned before, not everything goes according to plan. For better or worse, you should be able to make the right decision under certain circumstances. So if you are left with no choice but to leave, remember to inform your landlord properly with an appropriate letter. If possible, try to find a replacement to rent the home so you can get your deposit back. And if you feel like it’s not time to move yet, negotiate with your landlord and make sure all the details of the agreement are written on paper to avoid future disputes.
But before that, you need to find a home first? What better place to find your dream home than at Instahome!