A QUESTION I frequently get asked is, “Are tenancy agreements important? Do I really need a tenancy agreement when I rent out my property?”

While a strong, clearly worded tenancy agreement is absolutely crucial in any rental situation, many investors somehow do not see the importance of this legal document.

Corporate landlords and tenants would never dream of entering into a tenancy without a properly prepared and drafted agreement. This, however, cannot be said for many residential landlords and tenants.

Many investors think that the trouble of preparing and executing an agreement is just not worth it.

As such, a whole lot of tenancies are concluded merely on verbal agreements and handshakes.

While it is understandable that some people may not want to get into the nitty gritty of formalising contracts, it must be pointed out that when a disagreement occurs, the tenancy agreement is mostly the only way to resolve the misunderstanding in a fast and efficient manner.

As such, even if you feel that your property is just a small one and the rental doesn’t amount to much, it is imperative that a mutually agreed and crafted agreement is necessary.

Many people are also of the opinion that any agreement will do. Hence, they somehow obtain an agreement from somewhere, make minimal changes to suit themselves, and execute this.

In most cases, you may get away with this. However, like I mentioned earlier, when trouble starts, this standard agreement may not adequately protect your interest.

When you enter into a tenancy with someone, you essentially form a legal relationship with that other person for the duration of the tenancy.

This legal relationship is bound to have various terms and conditions that outline the obligations and responsibilities of both parties. The tenancy agreement merely formalises these obligations and responsibilities.

A tenancy agreement formalises the contract between the landlord and the tenant. It allows the tenant to live in the home for the entire duration of the tenancy, as long as they pay the rent and follow the rules.

A tenancy may be for a fixed term (for a set period of time) or periodic one (month to month basis).

The tenancy agreement will clearly spell out several things:

1.Details of the property, address etc.

2.The monthly rental.

3.Security and utility deposits to be paid.

4.Terms of the tenancy.

5.Details of both landlord and tenant.

6.Obligations of the tenant.

7.Obligations of the landlord.

8.Mutual obligations.

9.Renewal clauses.

10.How the rent is reviewed, either periodically or upon the tenancy being renewed.

Another thing that many people overlook is the importance for the tenancy agreement to be stamped.

In order for the agreement to be valid as a legal document, it is compulsory for the agreement to be stamped.

This can be done quite easily at any Inland Revenue Board office in the country.

The full stamp duty will have to be paid on the first copy of the agreement. Subsequent copies are charged at RM10 each.

For security reasons, you should ideally make three copies of the agreement - one copy for the landlord, one for the tenant and the third one to be kept safely by the estate agent.

It is entirely not uncommon for both the landlord and tenant to misplace their copies of the agreement. This is precisely when the third copy kept by the estate agent comes in useful.

A landlord who doesn’t want to invest on a tenancy agreement is just being “penny wise, pound foolish”.

You are the proud owner of a property. You have just rented out your property and made your investment work for you. Now do the right thing and get it formalised in a legally binding contract.

Happy hunting, and may the force be with you.

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