Residential Tenancy Act: A Curse or A Blessing?
In recent years, many have pushed for a piece of legislation that would govern conflicts arising out of residential tenancy agreements. The demand for this became even more prominent when the COVID-19 pandemic hit Malaysia, leaving both landlords and tenants high and dry – landlords raising rents arbitrarily, and tenants refusing to pay rent. After much deliberation, the Residential Tenancy Act (‘RTA’) is proposed to address these concerns. The Australian Residential Tenancy Act 1997 will be a point of reference. It will however be adapted to fit the local context.
(1) The RTA will provide a template tenancy agreement
The current practice is that the rights, obligations and remedies of the parties will be purely contractual and stipulated in the tenancy agreement, which is problematic if one party takes advantage of his stronger bargaining power or knowledge, to compel the other into accepting certain terms he may not have agreed to. In the best interests of both parties, the template tenancy agreement aims to lessen such unjust incidents, by establishing a set of standard terms that balance the landlord’s and tenant’s rights, duties, and remedies. If the Australian Act is strictly adhered to, every landlord and tenant will agree to a set of rights and obligations, whether or not they are in the signed agreement, including rent increases, reimbursement for urgent repairs and the landlord’s access to premises. Any terms unfairly biased towards one party will also be void and possibly penalised.
(2) The RTA will act as a comprehensive legislation regarding residential tenancies
Despite there being existing legislations like Contracts Act 1950, Specific Relief Act 1960 and National Land Code 1965, these provisions are each separate legislations that deal with a variety of issues. The RTA aims to provide a comprehensive and all-encompassing legislation that will put all these issues under a single umbrella, ultimately ensuring there are provisions to protect and preserve the landlords’ and tenants’ rights from loopholes in the existing laws. This all-in-one legislation will also include the existing rights and remedies, such as the right to evict a tenant via a court order provided under Section 7(2) of the Specific Relief Act 1950. A legal framework coupled with introducing a template tenancy agreement could undoubtedly provide safeguard/better protection to the party who is relatively inexperienced or in a weaker financial position.
(3) Establishment of a Tribunal
Even with the template agreement, no agreement is perfect, and there are bound to be disputes arising between the parties. Therefore, following the introduction of the RTA, the parties no longer have to bring the claim to a small claims court as the process is often costly and lengthy, often making it a ‘zero sum game’ to pursue the claim. Instead, a special Tribunal will handle such disputes with a maximum sum of not more than RM250,000 and as seen with the Strata Management Tribunal, a Tribunal of such kind saves time and money, while eliminating the need for legal representation. This Tribunal can also handle disputes arising out of the tenancy agreement, such as rent control and rental duration, as there are no avenues to resolve those issues.
(4) Rental control
Landlords can freely increase the rental rate upon the expiration of the tenancy term, unless a fixed rental increase was negotiated by the tenant initially. However, the RTA proposes to restrict the number of rent increases to once a year and its quantum. This is to prevent exorbitant rental increases, particularly in high-demand areas where the landlord would receive a better offer while the lease is still active. If the landlord wishes to raise the rental, he can only do so after the renewal of the rental period. He also has to provide written notice of at least 60 days before the expiry of the tenancy agreement, allowing the tenant time to assess whether the new rental amount is acceptable to them. As this move directly interferes with basic economics and market forces, is it justifiable in the interest of protecting the financially weaker party?
(5) Determination of rental rate
One of the most controversial proposals is that the RTA will impose rental caps depending on the property. Properties must be marketed with a fixed price, and landlords may not accept a higher price. This undeniably protects the interests of individuals in a more vulnerable financial position, but at the expense of the country’s economic growth, and may not be practicable given the many properties and accommodation styles found in Malaysia, and its enforcement may also be an issue. The government’s interference in such private rental agreements between a willing tenant and willing landlord may deter property investors, and might drive the local and foreign investors away. Perhaps this certain part of the legislation should have selective application – only to protect certain segments of the public based on specific earning capability or needs. This way, it can balance the interests of those who are more vulnerable while not bringing a detrimental impact on the economy’s growth.
(6) Anti-discrimination clause
As of today, landlords have the ability and freedom to refuse a potential tenant or remove an existing tenant based on their preferences. Through the proposed RTA, the tenants will all have an equal chance to rent an accommodation and not be prejudiced due to certain characteristics like one’s race, employment status, and gender orientation. However, there are concerns by property owners that the right to rent immoveable property to anybody they want is an inalienable right and should not be taken away. It is also difficult to conclusively determine whether the rejection was purely due to biased perceptions, as many landlords want to select responsible and trustworthy tenants who can best support their financial goals. Perhaps a database or credit rating system could be a more objective way to identify problematic parties. This would enhance the decision-making procedure for landlords while also ensuring that potential tenants are not prejudged based on their characteristics.
In conclusion, having an “all-in-one legislation” specially for residential tenancies and the establishment of a special Tribunal under the RTA would be a welcome step.
However, instead of prescribing rigid statutory terms that limit a landlord’s legal and economic rights to manage or rent his property as he sees fit, the RTA should perhaps focus on striking down just highly unfair terms of contracts, setting minimum statutory standards, increasing knowledge of parties’ rights and remedies, and resolving disputes equitably, to ensure both sides receive proper and adequate protection.
Should there be any seriousness in implementing the RTA, it is hoped that the lawmakers will take note and act on the possible concerns and issues to produce a win-win situation for all parties.
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This article was written by Shawn Ho (Partner) with assistance from Tan Jing Huei (Intern) from the property & tax practice group of Donovan & Ho. Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020 and 2021. We are also ranked as a Recommended Firm by IFLR1000 2020 and 2021.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. We also advise on property transactions and real-estate related tax planning. Feel free to contact us if you have any queries.
