Lease Agreement in Malaysia

The document to govern a person who leases a land to another person and the person who accepts the lease is called as a lease agreement. The person that leases the land is a lessor and the person accepting the lease is a lessee. 

Lease is one the dealings which is capable of being registered under the law. This is pursuant to Section 5 of the National Land Code 1965 provides that a lease is referred to as registered lease or sub-lease of alienated land while tenancy is referred to as tenancy exempt from registration. Hence, for lease to be effective, it must be registered by submitting Form 15A as provided under the NLC 1965.

Once registered, a lease will create a legal interest in the said property by making it enforceable against the third party and parties of the lease agreement will enjoy protection under the law. 

This article hopes to enlighten you on the nature of lease agreements in Malaysia.

In this post, we will explain on the details of lease agreement in Malaysia on the following aspects:-

1. What is lease agreement in Malaysia

2. What are the details that should be included in a lease agreement

3. How much does the Stamp Duty costs and legal fees that you have to pay for a lease agreement

1. What is lease agreement in Malaysia

A lease agreement is a legal contract between “lessor” and “lessee” which is also can be referred as landlord and tenant tho rarely used. The lessor may grant a lease wholly or partly with regards to the land based on Section 221(1) of the NLC 1965. Other term that must be complied with is the term for a lease must be exceeding 3 years as provided under Section 221(2) of the NLC 1965 otherwise it will be regarded as tenancy. 

Nonetheless, although  the minimum lease term is 3 years, the maximum term that. May begranted for a lease differs as accordance to the nature of the land. If it’s a whole piece of land a lease can be granted for 99 years. If only a part of the land to be subjected to a lease, only 30 years of lease may be granted.

The most important part of granting a lease is to have the lease to be registered. Once the lease is registered, the interest will be vested on the lessee and lessee is protected and has the right to peacefully use the land without any interruption from the lesson unless agreed. 

On top of that, the lease is also valid under the law of contract. Usually this document will be appended along with the lease registration.

A lease agreement is important as further spells and detailsevery duties and responsibilities of both lease and leasor.

For example, the period term of the lease, the rent, the rights of renewal, etc. We will explain this further in the next point.

2. What are the details that should be included in a lease agreement

Althought the clauses in this agreement seems to be the same as laid in a tenancy agreement, a lease agreement needs to be in compliance with the National Land Code 1965 and any other written law. 

Among the key differences between these two agreements are mainly on the period term of agreement as well as the manner of security that a lessee has as compared to a tenant in a tenancy agreement.

Among the key terms that you should have in a lease agreement are;

Details of the property being leased

• Type of the leased premise or land;

• Address on where it is located; and

• Condition of the land along with the building on (if any) along with its content.

Term Period of Lease Agreement

• Minimum period for a lease must be a minimum of 3 years but limited up to a maximum period of only 99 years as for the whole land and only 30 years if only part of the land is subject to the lease.

• Although there is no provision under the law which compels a landlord to automatically renewa lease, you may negotiate for an automatic term renewal for the term subject to the consent og the lessor. Usually if this term is invoke in the negotiation and if the lessor agree, he may lessee to firstly comply and fulfill all lessee’s obligation in current term before granting a renewal of that lease.

Rental amount and deposits

• The rental lease amount can be negotiated based on the value of the surrounding areas’s lease and other circumstances between the parties in the agreement.

• The deposits that may be required by the lessor can be in several forms. For example security deposit for lease payments, utilities deposit for utility payments as well as other deposits as agreed between parties in the agreement. For a security deposit, it can range from a mininum of one-month lease payment amount, two months lease payment or even more depending on how comfortable is the lessor with financial capability of the lesse.

Obligations as a lessor/landlord - Lessor covenants in a lease agreement

• The landlord which is also known as a lessor carries the responsibility that throught out the lease period the land title continues to be indefeasible under the lessor and that the lessee in obtaining the lease from the lessor would be able to enjoy the usage of the land without any interruptions. Obligations as a lessee.

• Basic obligations such as paying the monthly lease payment in due time agreed and utilities (if stipulated in the agreement) taking care of the property and reporting all matters that may result or have resulted damages to the land and property to the land to the lessor.

Rules set out by the landlord 

• The landlord may set out other rules which outlines things that the lessee is prohibited from doing so.

Ways to resolve problems in a lease agreement

• This clause is provided to allow parties agree on the manner  to resolve any problems arising with regards to the lease agreement between the lessor and the lesser.

• To illustrate, if there is any breach of responsibilities by the lessee in the lease agreement, the lessor shall have the right to terminate earlier than the designated time the lease or give a notice to quit or vacate the property. On top of that this clause which is usually named as a  termination clause shall also function to guide the parties on how to treat any existing valuables or damages that exists o the land or property.On the other hand, if a landlord fails to honour his part of the bargain in the agreement a lessee may enforce his right in the agreement via a default clause or a termination clause.

• Another clause that may exist in the lease agreement is in terms of the ultimate resolution platform that will be used as the o resolve the dispute. This may be via the court, arbitration or mediation.

3. How much does the Stamp Duty and legal fees for a lease agreement cost

Stamp duty of a lease agreement

The stamp duty rate is prescribed under the Stamp Act 1949. Below is the stamping fee calculation. It has to be based on the amount of monthly rental and the lease period:-

RM4 for every RM250 of the annual rental above RM2,400. The stamp duty is free if the annual rental is below RM2,400.

Solicitor legal fee for a lease agreement

Legal fees that must be paid to a solitor for the lease agreement is regulated and based on the Second Schedule of Solicitors Remuneration Order (SRO) 2006 Legal Profession Act 1974.

The value of the legal fee are calculated as follows :-

For the first RM 10,000 of the lease rent, 50% of the rent value shall be the legal fee. However the fee will not be below RM600).

For the nextRM 90000 of the lease rent, 20% of the rent value shall be the legal fee.

If the lease rent is more than RM 100,000, the client and the solicitor may negotiate the legal fee so long as the fee does not exceed 20%  of that lease payment value.

Should you need a lawyer to assist you, feel free to contact us.