Can landlord claim for rental of unexpired term?

Can landlord claim for rental of unexpired term?

If your tenant terminate the tenancy prematurely before the expiration date, can you as the landlord claim for the rental of the unused term ? In Malaysia, landlord rights regarding claims for unexpired tenancy / lease terms are governed by common law and the specific terms stated in tenancy agreements. There are no statutory provisions that directly address this issue, so the terms agreed upon in the written contract between landlord and tenant are crucial. 

Case Law on Unexpired Term Claims

The case of Berjaya Times Square v. Twingems Sdn Bhd & Anor clarifies that landlords can claim rent for the unexpired lease term as liquidated damages if the tenant breaches the tenancy agreement. The High Court upheld the landlord’s right to claim for the entire unexpired term, emphasizing that the losses incurred were actual losses due to the tenant’s non-performance.

Potential Issues and Mitigation

While the right to claim for the unexpired term might seem excessive, particularly for long leases, it is a legal mechanism to ensure landlords are compensated for their losses. However, this can lead to significant financial burdens on tenants who terminate leases early. For example, a RM20,000 per month lease terminated with 12 years remaining would result in a RM2.88 million claim. If the landlord subsequently re-rents the property, they could potentially double their rental income, this could become an unnecessary windfall.

As such, courts may require landlords to mitigate their losses. The case of Leong Kim Wai v. Minato Enterprise demonstrates this, where the court held that landlords have a duty to mitigate losses and must prove the actual damages incurred. The court dismissed the landlord’s claim because the losses were not substantiated.

Recent cases like Sargunam Seeniappan v. Velloo Vallian @ Vellayan illustrate a judicial trend towards limiting landlord claims to periods corresponding to the actual vacancy until a new tenant is secured. This approach prevents excessive claims and aligns with principles of mitigating damages.

Such nature of claim should also be considered together with Section 75 of the Contracts Act 1950, to assess whether such claims for unexpired lease terms constitute an exorbitant or unreasonable amount of penalties. 

Conclusion

In conclusion, understanding the rights and obligations outlined in tenancy agreements is essential for both landlords and tenants in Malaysia. In view of the above cases, the mitigation of losses will likely be the main contentious issue in awarding a landlord the whole of the rental for the unexpired term of a tenancy or lease.

Author: Patrick Tan, Partner the firm

patrick@tnhlaw.com.my

Disclaimer:

This article is intended for informational purposes only and does not constitute legal advice. Every situation is unique, and specific legal advice should be sought based on the particular circumstances. Readers are encouraged to contact us at Tang Hong & Lock if they require legal advice or have any questions regarding the content of this article.