Understanding Your Rights as a Landlord When Tenants Stop Paying Rent
As a landlord in Malaysia, few situations are more frustrating than a tenant who stops paying rent. Whether you own residential or commercial property, rental arrears can significantly impact your finances and peace of mind. The good news is that Malaysian law provides several remedies to help landlords recover unpaid rent and, if necessary, regain possession of their property.
This guide explains the three main legal remedies available to landlords: distress, forfeiture (re-entry), and civil court action. Understanding these options will help you make informed decisions about how to proceed when faced with a defaulting tenant.
Remedy 1: Writ of Distress Under the Distress Act 1951
The Distress Act 1951 (Act 255) is a powerful statutory remedy that allows landlords to seize and sell a tenant's movable property to recover unpaid rent. This remedy is unique because it allows you to recover arrears without first obtaining a court judgment on the debt itself.
What Is Distress?
Distress is the legal process of taking a tenant's movable property to compel payment of rent arrears. As defined in legal terminology, it involves seizing goods found on the rented premises to procure satisfaction for the unpaid rent. The landlord's power of sale over distrained property is statutory, meaning it is specifically authorised by the Distress Act 1951.
Key Requirements for Distress
To apply for a writ of distress, you must satisfy several conditions:
Relationship requirement: The remedy is only available to landlords against tenants. A licensor cannot use distress against a licensee, as established in the Privy Council case of Kandasami v Mohamed Mustafa [1983].
Time limitation: You can only recover rent arrears for a maximum of twelve completed months immediately preceding your application. This means you cannot let arrears accumulate indefinitely and then attempt to recover several years of unpaid rent through distress.
Presence of goods: There must be movable property on the premises that can be seized. The goods must be found on the specific premises that are the subject of the tenancy agreement.
The Distress Procedure
The application for a writ of distress is made ex parte (without notifying the tenant beforehand) by originating summons to a Judge or Registrar. You will need to submit a supporting affidavit detailing the arrears owed.
Once the court issues the writ of distress, it is executed by the court bailiff or sheriff. The bailiff will attend the premises, seize the tenant's movable property, and prepare an inventory with an approximate valuation. The tenant receives a notice of seizure informing them of the amount due and the date of the intended sale.
Importantly, the tenant has five days from the notice to pay the outstanding amount. If payment is not made, the seized property can be sold at public auction no earlier than six days after the seizure notice.
Tenant's Right to Challenge
The tenant is not without recourse. Under Section 16 of the Distress Act 1951, a tenant may apply to discharge or suspend the writ of distress, or to release any part of the property seized. This application must be made within seven days of the seizure and must be supported by an affidavit stating the grounds.
Remedy 2: Forfeiture and Re-Entry
Forfeiture allows a landlord to terminate the tenancy and repossess the property when a tenant breaches the terms of the lease agreement, including failing to pay rent. This remedy focuses on recovering the property itself rather than the money owed.
Understanding Forfeiture Clauses
Most properly drafted tenancy agreements contain a forfeiture clause that gives the landlord the right to terminate the tenancy and re-enter the premises if the tenant fails to pay rent within a specified period, typically 14 to 30 days after the due date.
Before exercising this right, landlords should carefully review their tenancy agreement to understand the exact terms of the forfeiture clause, the notice requirements specified, and any grace periods that must be observed.
Peaceable Re-Entry vs Court Order
Landlords should be cautious about exercising re-entry without proper legal process. While "peaceable re-entry" may be theoretically available, attempting to physically remove a tenant or change locks without court authorisation can lead to complications and potential liability.
The safer approach is to apply to the court for an order for vacant possession. This involves filing a civil suit against the tenant seeking a declaration that the tenancy has been lawfully terminated due to the breach, and an order directing the tenant to deliver vacant possession of the premises.
Relief Against Forfeiture
Tenants may apply to the court for relief against forfeiture. The court has discretion to grant such relief if the tenant pays all arrears and costs, and demonstrates a willingness to perform the lease obligations going forward. Courts generally exercise this discretion in favour of tenants who can remedy the breach and where forfeiture would cause disproportionate hardship.
Remedy 3: Civil Court Action for Debt Recovery
The most straightforward remedy is a civil suit to recover the unpaid rent as a debt. This action can be combined with a claim for possession if you also wish to terminate the tenancy.
Filing a Civil Suit
To commence a civil action, you will file a writ of summons or originating summons in the appropriate court. The choice of court depends on the amount claimed:
Magistrates' Court: Claims not exceeding RM100,000
Sessions Court: Claims exceeding RM100,000 but not exceeding RM1,000,000
High Court: Claims exceeding RM1,000,000, or where recovery of immovable property is sought
Small Claims Procedure
For rental arrears not exceeding RM5,000, you may consider using the Small Claims Procedure under Order 93 of the Rules of Court 2012. This provides a faster, simpler, and more cost-effective way to recover smaller amounts without the need for legal representation.
Default Judgment
If the tenant fails to enter an appearance or file a defence within the prescribed time, you may apply for default judgment under Order 19 of the Rules of Court 2012. This can significantly expedite the recovery process.
Enforcement of Judgment
Once you obtain a court judgment, various enforcement mechanisms become available. These include a writ of seizure and sale of the debtor's assets, garnishment of bank accounts or money owed to the tenant by third parties, and examination of the judgment debtor to identify assets.
Practical Advice for Landlords
Prevention Is Better Than Cure
The best way to deal with defaulting tenants is to minimise the risk before it occurs. Conduct thorough background checks on prospective tenants and collect an adequate security deposit, typically two to three months' rent. Ensure your tenancy agreement is professionally drafted and contains clear default provisions.
Act Promptly
When rent goes unpaid, act quickly. Send a formal demand letter as soon as rent becomes overdue, keep records of all communications, and consult a lawyer early if the tenant does not respond.
Choose the Right Remedy
Each remedy serves different purposes. Use distress when you primarily want to recover money and there are valuable goods on the premises. Pursue forfeiture when your main goal is to regain possession of the property. File a civil suit when you want a formal judgment that can be enforced in various ways, or when combining claims for both money and possession.
Document Everything
Maintain meticulous records of the tenancy agreement and any amendments, rent payment history and all receipts, all written communications with the tenant, and photographs of the property condition.
Conclusion
Malaysian law provides landlords with robust remedies when tenants default on rent. The Distress Act 1951 offers a powerful tool for recovering rent arrears through the seizure and sale of the tenant's property. Forfeiture allows you to terminate the tenancy and recover possession. Civil court action provides a formal legal judgment for debt recovery.
Understanding these options allows you to choose the most appropriate remedy for your situation. In many cases, a combination of remedies may be most effective—for example, pursuing distress for immediate rent recovery while also seeking forfeiture to terminate the tenancy.
This article provides general legal information about landlord rights in Malaysia and should not be taken as legal advice for any specific situation. Laws and procedures may change, and the application of legal principles depends on the specific facts and circumstances of each case. If you are dealing with a defaulting tenant, you should consult a qualified Malaysian lawyer who can advise you based on your particular situation and the current state of the law.