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All About Tenancy

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1. What is a tenancy?
 
A tenancy is commonly called a rental or letting of a property. Legally, it is known as Tenancy Exempt from Registration in the National Land Code (NLC) 1965. The NLC defines a tenancy as a letting of three years or less, and is exempted from the need to be endorsed in the document of title.
 
Other types of tenancies exist outside the NLC, such as a Tenancy at Will. This occurs where a property is rented to a tenant for unspecified period, and every time rental is paid, it is renewed for another month ( it is therefore also known as a month-to-month tenancy). The tenancy may be ended by either party at any time by giving the other party one month's notice. This informal tenancy usually happens when a tenant holds over after a valid tenancy expires.
 
 
2. What is a lease?
 
A lease, according to the National Land Code, is a tenancy of more than three years, and is required to be endorsed in the document of title for the rights and interests of the tenancy to be enforceable in court. A lease can be as long as 99 years, such as a plot of leasehold land leased from the State.
 
The maximum term for the whole of any land is 99 years, whereas the maximum term for any part thereof is 30 years. A lease is granted by a statutory instrument known as Form 15A, subject to any restriction in interest in the title, any prohibition/limitation imposed by NLC. 
 
A lease cannot be granted to more than one person or bodies. Consent of the chargee (the owner's financier/bank if any) is required.
 
Section 222 of NLC permits lessees (lease holders) and sub-lessees to sub-let for terms of more than 3 years.
 
 
3. Under what circumstances is a tenancy or a lease appropriate?
 
A tenancy is suitable for property needs of shorter term (less than 3 years)  such as rental of residential properties. The tenant's needs may change due to buying own property or being transferred to new location. On the other hand, the landlord may want to sell the property in near future, need it for own use, or simply to increase rental when the tenancy expires. 
 
Likewise, tenants of shops or factories may have changing plans or expect uncertainties in the near future and prefer to rent for shorter term, and renew the tenancy later if necessary.
 
The length of tenancy period is to be mutually agreed upon by both the tenant and landlord right from the beginning.
 
A lease, on the other hand, is suitable for long-term rental needs such as when the tenant plans to erect a building on rented land and, due to the heavy investment in the building, wants to secure long-term tenure.
 
 
4. How is a tenancy created?
 
A tenancy may be created by word of mouth or in writing. And of course, a written agreement is more secure than a verbal one. After a person viewed a property and intends to rent it, the estate agent negotiates the terms and conditions, writes up an offer letter to the landlord, accompanied by an Earnest Deposit (of usually one month's rent). 
 
If the landlord accepts the written offer, a Tenancy Agreement (TA) is drafted. When all the detailed terms and conditions are agreed upon by both parties, the TA is finalized and signed. The tenant then pays the rental deposit, utilities deposit and moves in.  
 
 
5. How is a lease created?
 
A lease is created in similar manner as a tenancy, except that a lease has to be in writing (Lease Agreement), granted in statutory form (Form 15A) and the tenant's rights and interests are endorsed in the document of title.
 
 
6. What are contained in a letter of Tenant's Proposal to Rent?
 

A Tenant's Proposal to Rent, when accepted by the landlord, becomes a preliminary contract that contains the following fundamental terms and conditions:

  • Particulars of property to rent.
  • Monthly rental - which usually includes the maintenance fee if any.
  • Earnest Deposit - typically one month's rent paid at the time of offer, and becomes Advance Rental upon signing Tenancy Agreement.
  • Advance rental - typically one month's rental - for the first month.
  • Security/Rental Deposit - typically two months' rental - to secure the landlord against non-payment of rentals or damage to the property.
  • Utilities Deposit - typically half a month's rent - to secure the landlord against non-payment of water and electricity bills by the tenant.
  • Length of fixed tenancy period - typically one to three years.
  • Tenant's Option to Renew the tenancy upon expiry - typically for further one to three years.
  • Tenant's obligation to execute the Tenancy Agreement within, typically 14 days, and bear the legal cost and stamp duty.
  • Vacant Possession - date of handing over the premises to the tenant.
  • Fitting-In Period - an initial period free of rent for the tenant to furnish or renovate the premises.
  • Commencement Date - the date tenancy and rent start to run.
  • Permitted Use - specified so that use of the premises for unauthorized, illegal or immoral purposes are prohibited.
  • Special Conditions - specifies certain condition(s) that are not usually practiced.
  • Fittings Included - the fixtures and fittings included in the rental.
  • Validity Period of Offer - specifies the period landlord is to accept the offer to rent or it lapses.

 
7. What are contained in a Tenancy Agreement?

Besides repeating the above fundamental terms and conditions in more detailed manner, the Tenancy Agreement also contains all other terms and conditions to make the agreement thorough and complete - such as:

The Tenant agrees:

  • To pay the Security/Rental deposit and Utilities Deposit to the landlord upon commencement of tenancy.
  • Not to off-set the security deposit against rental arrears at the end of the tenancy period.
  • To pay rent punctually in a certain mode, such as crediting it into landlord's bank account. A grace period of seven days is usually allowed in paying rent.
  • To pay all the monthly utility bills punctually.
  • To maintain the premises, fixtures and fittings in good repair and condition.
  • To permit the landlord or his/her workmen to enter the premises to carry out repair works after giving prior notice.
  • Not to create nuisance or annoyance to neighbours, or use the premises for illegal or immoral purposes or keep dangerous materials therein.
  • Not to do alteration or additions or add electrical power points to the premises without landlord's consent.
  • Not to sub-let the premises to other sub-tenants without landlord's consent.
  • To return the premises to landlord upon expiry of tenancy in good condition as before - fair wear and tear excepted.

The Landlord agrees:

  • To pay maintenance fee, assessment rate and quit rent.
  • To insure the premises (but not the tenant's belongings) against fire damage, and to keep roof, drains and external walls in good repair and condition.
  • To permit tenant to peacefully and quietly enjoy the premises (if tenant pays rent punctually and is not in default of other conditions).

Both parties further agree:

  • That upon expiry of tenancy, the tenant is to restore and vacate the premises of all belongings . The landlord may restore the premises and charge the tenant if he fails to do so. If tenant fails to vacate, s/he has to pay double rental.
  • If rent is not paid within seven days after it is due, the landlord may take legal action or enter the premises to repossess it.
  • If the premises is partially damaged (for example due to fire), the landlord is to repair it and give discount on rental till it is repaired. If it is totally damaged and becomes unfit for occupation, the tenant is exempted from paying rent and may terminate the agreement.
  • Upon expiry of tenancy, the tenant renew the tenancy for further period by giving notice (new rental may be decided by both parties then).
  • Landlord is not responsible for accidents caused or legal offences committed by the tenant.
  • The tenancy is binding on the successor-in-title, ie the new owner if title is tranferred.
 
8. What are the rights and obligations of the parties under a tenancy agreement?
 
A tenancy is a contract and depends, first and foremost, on the terms of the agreement. Whatever the parties have expressly agreed upon will bind them. These are known as Expressed Covenant (agreement). Examples of expressed covenant are listed in item 7 above.
 
Where no terms are agreed upon, or certain terms are left out in the agreement, the law will impose certain terms known as Implied Covenant. A covenant will only be implied where there is no expressed covenant dealing with a particular matter. And an expressed covenant will prevail against an implied covenant if they conflict.
 
Also, there is a general rule known as Independence of Covenants - where covenants in a tenancy are independent of each other. For example, a breach of landlord's obligation to repair under a repairing covenant does not relieve the tenant from his liability to pay rent.
 
Implied Covenants by the Landlord include the tenant's right to quiet enjoyment of the premises free from landlord's disturbance (unless the tenant defaults), and to keep in good repair and condition the roof, walls, drains, common passages or installations.
 
Implied Covenants by the Tenant include the obligation to pay rent at specified times and manner, to observe and perform all conditions, expressed or implied. Also, the tenant is not to transfer or sub-let the tenancy or lease without the landlord's prior consent.
 
 
9. Under what circumstances can a Tenancy Agreement be terminated?
 
A Tenancy Agreement (TA) may be terminated when it has run its course - the fixed period has expired and not renewed. In this case the tenant may just write to inform the landlord of his/her intention not to renew the tenancy and the agreement ends.
 
A Tenancy Agreement can also be terminated when a party is in default - such as non-payment of rent, or use of the premises for an illegal purpose. Agreements usually say that if rent is not paid within seven days after it is due, the landlord may take legal action to recover the rental arrears and repossess the premises.
 
However, if the default is minor, such as minor damage to the premises, the landlord may not be able to terminate the agreement. The landlord may just issue a notice requesting the tenant to repair, failing which the landlord may sent workmen to do so and charge the cost to the tenant. 
 
 
10. Can the tenant terminate a tenancy before the expiry date?
 
A tenancy agreement usually specifies a fixed rental term/period which both the tenant and landlord must complete. During this period, the tenant is not allowed to terminate the tenancy, and the landlord is not permitted to raise rental rate or take back the premises (without any default by the tenant). 
 
Should the tenant intends to terminate the tenancy before it expires (without any default by the landlord), the tenant has to pay a compensation to the landlord. Typically the compensation is having the rental/security deposit forfeited to the landlord if the agreement says so. Otherwise, the landlord may claim rental for all the uncompleted months of the fixed term. 
 
Should the landlord intends to terminate the tenancy before it expires (without any default by the tenant), the tenant may refuse to comply, or may agree to terminate the tenancy and negotiate with the landlord for a compensation.
 
Sometimes a tenancy agreement may contain a clause for either party to termination the tenancy before it expires, by just giving to the other party an advance notice to terminate, and the agreement ends without any penalty for either party. This is often known as an open tenancy. 
 
For an expatriate tenant, sometimes an agreement may provide an "expatriate clause" or "escape clause" that allows the tenant to terminate the tenancy in the event s/he is transferred by employer to another location.
 
 
11. Can the landlord take back the premises when the tenancy expires but the tenant wants to renew it?
 
A tenancy agreement usually gives the tenant an Option to Renew for a further term upon expiry of the fixed term. The new rental rate upon renewal may be fixed according to a pre-agreed formula (eg. capped at maximum 10% increase) or to be mutually agreed upon.
 
If the the tenant wishes to excercise this option to renew, s/he usually has to convey this intention to the landlord a month or two before the tenancy expires, as stated in the agreement. Failing to do so entitles the landlord to take back the premises or rent it to another tenant. 
 
In an Option to Renew, the tenant is given the first right of refusal - meaning s/he must be given the priority against other tenants to extend the tenancy upon expiry. In the absence of any clause in the agreement allowing the landlord to take back the premises upon expiry for own use, the tenant has the right to renew the tenancy.
 
 
12. If a property is sold, can the new owner evict the existing tenant?
 
Tenancy agreements usually has a clause to bind the successor-in-title, in this case the new owner/landlord. The new landlord is not entitled to evict the tenant while the agreement is still in force. If the new landlord really needs the premises, s/he can only try to negotiate a compensation with the tenant, provided the tenant entertains such a request. 
 
 
13. How does a landlord demand for payment of rental arrears and lawfully terminate a tenancy agreement?
 
The landlord is advised to first discuss peacefully with the defaulting tenant to settle the rental arrears. If the tenant is uncorporative, the landlord may then issue a Notice of Demand for outstanding rent, either by him/herself or through a lawyer. 
 
The Notice of Demand must point out the clause in the Tenancy Agreement that was breached - in this case non-payment of rent, and demands that the tenant pays the arrears within a certain period.
 
If the tenant fails to do so, the landlord may then issue a Notice to Terminate the tenancy. 
 
The said notices must be served on the tenant - usually by registered mail sent to the tenant's correspondence address in the tenancy agreement.
 
 
14. How does a landlord lawfully evict a defaulting tenant?
 
Section 7(2) of Specific Relief Act 1950 states that: "Where a specific immovable property has been let under a tenancy, and the tenancy is terminated or come to an end, but the occupier continues to remain, the landlord shall not enforce his right to recover it otherwise than by proceedings in court."
 
A tenant who moves into a premises legally has to be likewise evicted legally. The Specific Relief Act 1950 allows only one method to evict a defaulting tenant - by proceedings in court. The common practices of the landlord cutting off utilities supplies or locking up the premises are against the law. 
 
Section 8(1) of the Act states that: "Any person dispossessed of an immovable property without his consent otherwise than in due course of law, may by suit recover possession.." (even if the tenant is in breach).
 
 
15. What is the lawful procedure to evict a defaulting tenant?   
 
The landlord has to follow the correct procedure, to avoid tenant bringing civil/criminal suit to claim damages (compensation) or apply for court injunction to prohibit the landlord from disturbing his peace - even if the tenant is in breach.
 
To recover outstanding rent, the landlord may file a distress proceeding under the Distress Act 1951. This is done by applying to the court for a Warrant of Distress which empowers the bailiff of the court to seize movable property found in the premises to be auctioned off to pay for rent owed, legal cost and court fees.
 
To repossess the premises and at the same time claim overdue rent, the landlord may file a simple Eviction Summons in court. This is done after serving a Notice of Demand and giving the tenant a grace period to pay the arrears.
 
 
16. How does the landlord actually recover possession of the premises?
 
The Notice to Terminate as explained in item 13 above may also include a Possession Notice. The Possession Notice demands that the tenant hands over the premises within a certain period after termination of agreement, failing which the landlord may file an action in court. 
 
Upon obtaining judgment, a copy of the judgment is served on the defaulting tenant. If the tenant still refuses to vacate, the landlord may then apply for a Writ of Possession that empowers the bailiff to remove the tenant from the premises.
 
 
17. As a landlord, what should I do if a tenant defaults on paying rent and moves out at night? Is there a less costly and lengthy method to re-enter and repossess the premises without getting a court order?
 
Firstly, the landlord has to serve Notice to Terminate the tenancy as explained in item 13 above - to remove all the rights of the tenant as a valid tenant. 
 
Secondly, instead of taking a lengthy and costly action to get a court order to reposess the premises, for practical purposes the landlord may lodge a police report that the tenant has disappeared and uncontactable. 
 
And to re-enter the premises, it is advisable that the landlord be accompanied by independent witness(es) and to take photographs of the re-entered premises to avoid any possible accusation of theft by the tenant later.
 
It should be remembered that this method is not completely lawful. Landlords often resort to this method only as a practical solution. It may backfire should the tenant suddenly reappears to claim his/her rights. But in view of the tenant's default and disappearance, this "compromised method" may mitigate the landlord's fault if any, in re-entering the premise should his/her action be challenged in court. 
 
by Aaron Lee, Property Street
All Rights Reserved
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