“My tenant has not paid rent for months, what can I do?”
Renting out property is a common practice in Malaysia, and landlords often rely on rental income to cover their property expenses. However, when tenants default on their rental payments, landlords are often left in a precarious situation.
Many landlords resort to self-help remedies such as changing locks or terminating the access cards to the property – but such methods are unlawful under Section 7(2) of the Specific Relief Act 1950 and may potentially expose landlords to even greater liability.
Fortunately, there are legal remedies that landlords can pursue within the Malaysian legal framework. In this article, we will explore the legal remedies available to landlords when dealing with defaulting tenants in Malaysia.
Legal Remedies for Defaulting Tenants
Step 1: Letter of Demand
Typically the first step against a defaulting tenant is to issue a letter of demand which would contain amongst others (i) a demand for the total amount of rental arrears; (ii) the deadline by which the outstanding arrears are to be paid; and (iii) the consequences of failing to meet the payment deadline.
As there is currently no comprehensive statute regulating the landlord and tenant relationship in Malaysia, the contents of the letter of demand and the extent of the landlord’s rights in each case may vary, depending on the terms of the Tenancy Agreement.
For example, some Tenancy Agreements may provide for a longer grace period for the tenant to remedy their default; or contain clauses which make a defaulting tenant liable for not only the outstanding arrears but also for the remaining unexpired term of the tenancy.
This is why it is important to ensure that the terms of your Tenancy Agreement have been properly drafted and vetted by a professional.
Step 2: Court Action
In many cases, the letter of demand and the threat of an impending legal action will be sufficient to compel the defaulting tenant to make payment of any outstanding arrears.
If, however, the defaulting tenant refuses to comply with the letter of demand and still chooses to remain on the premises, the landlord will generally have two options, each with its respective pros and cons:-
- Option A: Recovery of Possession via Court Order and Writ of Possession
- Option B: Distress Action
Option A: Recovery of Possession via Court Order and Writ of Possession
In an action to recover possession, the process is typically broken down into two stages.
In the first stage, the landlord will terminate the Tenancy Agreement and file a claim in Court against the Tenant, essentially seeking an order for eviction / delivery of vacant possession of the Premises, payment of outstanding rental and any other sums legally due to the landlord (for example unpaid utility bills and rental for the unexpired term of the tenancy)
Once the landlord has obtained the Court order for eviction / vacant possession, the order will be served and affixed on the Premises, with a deadline for the tenant (and any other occupier) to comply.
If the tenant (and any other occupier) chooses to ignore the Court order and refuses to vacate the premises, the landlord can then proceed to the second stage, and apply to Court for leave to issue a Writ of Possession. Once the Writ of Possession is issued, a Court Bailiff will be assigned to attend at the premises to lawfully retake possession of the premises and to evict any person still remaining on the premises.
These proceedings typically take between 3 to 12 months to conclude, depending on whether the proceedings are contested by the tenant.
Option B: Writ of Distress (Seizure of Goods towards Satisfaction of Rental Arrears)
In the second option, the landlord does not seek an order to recover possession of the Premises. Instead, the landlord applies to the Court on ex parte basis (i.e. without the participation of the defaulting tenant) for a Writ of Distress to be issued.
After the Writ of Distress is issued, the Court Bailiff will attend at the Premises to seize goods belonging to the tenant, so as to compel the tenant to satisfy the rental arrears. A distress action will be lifted upon the tenant paying the arrears of rent in full or to the satisfaction of the landlord.
If the tenant nevertheless fails to pay the amount due within the stipulated time or to obtain an order to restrain the sale, the bailiff will then proceed to sell the seized goods by public auction. The proceeds of sale will be applied first, in payment of the bailiff’s fees and expenses and thereafter, in satisfaction of overdue rent and costs, and the balance will be returned to the tenant.
The main advantage of proceeding with a Writ of Distress is speed. This is typically a much faster process as in most cases the tenant is not given an opportunity to oppose the action before the Writ of Distress is issued.
In many cases, the tenant will make full payment of the rental arrears to avoid having their goods sold off. The tenant may also move out of the premises voluntarily after the auction or after the distress is lifted.
However, whilst this procedure is much quicker, there are some potential downsides which a landlord ought to be aware of:-
- A distress action does not result in an order for possession of the Premises but is only for the purpose of recovering rental arrears.
- Therefore if the tenant (or other occupiers) choose to remain on the Premises after the distress is lifted or after the sale of the goods, the landlord is not entitled to recover possession but will still need to apply for an order for possession (under Option A above).
- Certain goods such as tools of trade and clothing are potentially exempt from seizure.
- Wrongful seizure of goods may potentially expose the landlord to legal liability, for example if the goods seized and sold do not belong to the landlord.
- There is also the possibility that the final selling price or the value of the goods seized may be not sufficient to satisfy the rental arrears or legal costs.
- There is a maximum limit of 12 months’ arrears that can be recovered under a Distress Action.
Summary
In summary, when faced with a defaulting tenant, a landlord should avoid using self-help remedies.
Instead, the landlord should first issue a letter of demand in accordance with the terms of the Tenancy Agreement. If the tenant nevertheless fails to comply with the letter of demand, the landlord should then avail himself of one of the legal remedies available, bearing in mind the general pros and cons of each method:-
| Option A: Possession | Option B: Writ of Distress | |
| Summary | Obtaining a Court Order to Recover Possession of the Premises | Application on an Ex Parte Basis to Seize the Tenant’s Goods towards Satisfaction of Rental Arrears |
| Pros: | Results in the recovery of possession of the Premises Landlord may also seek an order for payment of other sums due under the Tenancy Agreement | Relatively faster process Tenant is typically not given the opportunity to challenge the proceedings |
| Cons: | May be a lengthier and more expensive process especially if the Tenant opposes the proceedings Recovery of judgment sum may require further enforcement action | Does not entitle landlord to recover possession of Premises (unless Tenant leaves voluntarily). Certain goods such as tools of trade and clothing are potentially exempt from seizure. Wrongful seizure of goods may potentially expose the landlord to legal liability. Goods seized and sold may be not sufficient to satisfy the rental arrears or legal costs. Maximum limit of 12 months’ arrears that can be recovered |
