What to do if your tenant won’t pay rent on time

What to do if your tenant won’t pay rent on time

It’s not easy being a landlord.

In fact, even after you have found a suitable tenant for your rental property in Malaysia, problems can still arise.

Some of the most common problems include tenants who use the premises for unapproved purposes, or those who don’t take reasonable care of the property.

But the most common problem of all? Tenants who don’t pay rent on time.

 

Every landlord’s fear; Not getting paid

Imagine going through the long process and expense of buying an investment property. Renovating it, furnishing it, listing it, and finally finding a tenant. Only to go deeper into losses when the tenant does not pay the rent on time.

Many landlords in Malaysia are bound to face this problem at some point. But, they are confused on what to do when it happens.

For example, how many late payments should you tolerate before taking action? Should you issue a warning letter? Or change the locks? Or cut the water bill?

If you are currently facing this situation, here is a step-by-step guide on what to do if your tenant is not paying their rent:

 

Step 1: Check your tenancy agreement

Before you jump into action, remember that every tenancy contract can be different, so you need to make sure that your tenant is REALLY in breach of contract.

For example, does the contract say that the rent is expected by the 20th of every month, but it’s only the 10th? Or, is there a clause that gives the tenant a grace period of 7 days?

Once you are certain they are breaking the terms of the tenancy, you can proceed to the next steps.

The tenancy agreement is the most important document in any rental arrangement
The tenancy agreement is the most important document in any rental arrangement

 

Step 2: Communicate first

How many late payments should you tolerate before taking action? It is entirely up to you, but in a legal sense, even if the tenant is late once, it is already considered a breach of the agreement.

But before you take drastic measures, talk to your tenant first. A landlord-tenant relationship is all business; but that doesn’t mean you shouldn’t be civil. Don’t immediately consider kicking out a tenant just because they were 3 days late for the first time in 18 months, for example.

A one-off late payment can occur if your tenant can be travelling and forgot to arrange payment. Or, they could have set up a recurring bank transfer, but that schedule ended last month. Or maybe their cheque got lost in the mail.

Give them a friendly call, or remind them through email or Whatsapp. You can even ask your property agent to contact the tenant on your behalf (if the agent is still in the business). Most of the time, it’s an honest mistake and the tenant will pay up right away.

A rental property management system like Rentcare can send automatic rental reminders to tenants
Remember to send timely rental reminders to tenants

 

Step 3: Offer a revised payment structure

If the late payments are happening more regularly, or they are behind by a few months, the tenant could be in financial difficulties. Perhaps they got fired, or got hit by a medical emergency with a huge cost. This will affect their ability to pay rent regularly for the near future.

If you are on good terms with this tenant and want to keep them on, it is up to you whether you want to continue the tenancy. If so, you can work out a revised payment scheme with them.

For example, you can offer a discount if the tenant pays all outstanding rent in full.

“If the tenant owes three months rental, the landlord can say if he pays up, he will give him a half-month deduction.”

– Adrian Un, CEO, Skybridge International (a property education and investment company. Quote from article in The Star

 

Step 4: Offer incentives for them to leave peacefully

On the other hand, you may also prefer to cut your losses and have them move out as soon as possible, even if it means not getting the full outstanding payment.

To incentivise your tenant to end the tenancy and move out, you can give them a discounted rate if they settle all their outstanding rent. You can also help them find a more affordable property nearby, or help to pay a moving service for them.

Taking a diplomatic approach that does not involve lawyers and the courts is preferred by seasoned landlords and property investors. After all, it may be better to find a replacement tenant quickly rather than have the situation drag out for many more months.

 

Step 5: Issue a letter of demand

If the above steps don’t work, and the late payment has not been made even after repeated messages, you can issue a letter of demand.

The letter of demand is essentially a warning letter saying that, if the payment is not made by a certain date, the landlord reserves the right to pursue the outstanding amount through legal methods.

You can draft and send a letter of demand on your own. However, it may be useful to engage a lawyer to help you, as they can provide more comprehensive advice.

Remember to send the letter via registered mail so that you have proof that the tenant received it. You can also enclose copies of any emails, Whatsapp, or SMS messages that you have previously sent as reminders.

If the tenant finally complies and makes payment, a letter of demand is a reasonably cost-effective way to recover the outstanding late payment. But if the tenant does not comply, it can also be used as evidence later.

Your tenancy agreement may have also included a clause that allows you to (a) charge interest on the late payments, or (b) increase the rental amount if the payment is late. It is up to you whether you want to exercise the right to do so.

Below is a sample letter of demand for late rental payment in Malaysia:

 

By Registered Post

LANDLORD:

[Landlord Name],
[Landlord Address]

DATE: [Date of this letter of demand]

 

TENANT:

[Tenant Name],
[Tenant Address]

 

Dear Sir/Madam,

RE : Letter Of Demand For Late Rental Payment

This letter serves as a formal demand for payment, pursuant to the written Tenancy Agreement on [DATE OF TENANCY AGREEMENT] entered into between [TENANT NAME] and the undersigned for Outstanding rental payment for [RENTAL PROPERTY ADDRESS].

The sum of [TOTAL OUTSTANDING AMOUNT OWED] is now past due and must be paid immediately to avoid legal action to collect this debt. The sum constitutes [NUMBER OF MONTHS TENANT IS LATE] months in arrears.

Despite our repeated requests and reminders, you have failed, neglected and/or refused to pay the aforementioned outstanding sum. As such, we have no alternative but to demand from you, which we hereby do, for the payment of the said outstanding sum.

If the outstanding sum of [TOTAL OUTSTANDING AMOUNT OWED] is not paid above within seven (7) days from the date of this letter, we shall commence legal proceedings against you without any further reference to you in which latter event, all cost, interest and expenses incurred thereby shall be strictly borne by you.

I have enclosed a copy of our reminders with this letter, for your reference.

 

Yours faithfully,

_____________

[Landlord Name]

 

Step 6: Terminate the tenancy and issue a notice of possession

If you are still unable to get paid, you can begin the eviction process.

Your tenancy agreement should already have a clause saying that, if the tenant is late in paying rent, the landlord has the right to take action.

The first thing you need is to send the tenant a possession notice. This is a formal letter to tell the tenant that you are terminating the tenancy under the Contract Act 1950, because the tenant has breached the agreement, you are repossessing the property, and they need to leave by a certain date.

The notice should include the following:

  • The reason for possession (i.e. breach of tenancy because did not pay rent)
  • What you have already done (i.e. send letter of demand and repeated reminders)
  • How long they are given before they need to leave the premises (e.g. seven days)

Below is a sample possession notice for non-payment of rental in Malaysia:

By Registered Post

LANDLORD:

[Landlord Name],
[Landlord Address]

 

DATE: [Date of this letter of demand]

TENANT:

[Tenant Name],
[Tenant Address]

 

Dear Sir/Madam,

RE : Notice of Possession for Nonpayment of Rental

This letter serves as a formal notice of possession, pursuant to the written Tenancy Agreement on [DATE OF TENANCY AGREEMENT] entered into between [TENANT NAME] and the undersigned for [RENTAL PROPERTY ADDRESS].

The reason for this notice is for non-payment of rental. Despite our repeated requests and reminders, you have failed, neglected and/or refused to pay the outstanding sum of [TOTAL OUTSTANDING AMOUNT OWED], constituting [NUMBER OF MONTHS TENANT IS LATE] months in arrears.

As you have breached the terms of the tenancy agreement, I am terminating the tenancy agreement mentioned above with immediate effect.

If you do not vacate the premises within seven (7) days from the date of this letter, we have the right to repossess the property from you without any compensation.

 

Yours faithfully,

 

_____________

[Landlord Name]

 

Step 7: Get the court’s approval to take back the property

If the tenant is not moving out, or ignoring your letter, you can now ask the courts for approval to evict the tenant.

However, you will need a lawyer to help you get permission from the courts to do this. And the courts will need a valid reason to grant the eviction order.

In Malaysia, there are two possible methods that your lawyer will use to get the court order:

  • The first method is to invoke the Specific Relief Act 1950. Getting a court order under this act allows the landlord to recover possession of the property from the tenant. But it does not provide an order to recover the outstanding rent amount.
  • The second method is to invoke the Distress Act 1951. This act allows a landlord to seize the property, and auction off the tenant’s possessions left inside it to pay off the outstanding rent.

Invoking the Distress Act may only make sense for commercial properties, as there may be business equipment and other assets left behind for the landlord to auction off. But, it may not make as much sense for residential properties.

Once a court order is given, a court bailiff will need to accompany you when you seize the property.

Whichever of the two methods you choose to use above, the legal process of eviction can be long and expensive, since the courts and lawyers are involved. According to this article, an eviction order could take up to seven months and may cost at least RM10,000 or more. If the tenant contests the summons, then the cost may become even higher.

 

Taking matters into your own hands

Can I change the locks or cut off the water and electricity supply if my tenant doesn’t pay on time?

To avoid a legal battle, some landlords take their own steps to “force” the tenant out of their rental property. But this is not allowed. There is a clause in the Specific Relief Act 1951, section 7(2) that landlords cannot take their own steps to repossess the property. This includes things like changing the locks.

You also cannot cut the water and electricity supply, unless that clause was added in your tenancy agreement. Otherwise, don’t do it as you it will give the tenant a reason to sue you for damages.

 

Step 8: Recover the premises with a police officer present

After you have the court order, you can file a police report. A policeman will need to accompany you when you re-enter your property (you may also need to hire a locksmith to accompany you to break the lock).

You should not break the lock and re-enter the premises without a policeman present. If you do so, you risk getting sued by the tenant. For example, the tenant may sue you for trespassing, or for entering the premises without informing them (as per the terms of the tenancy agreement).

You should not break the lock and re-enter the premises without a policeman present

Once you have entered the premises, you should take lots of photos of the interior as you found it. According to this article, this is to avoid the tenant claiming later on that something was taken.

Next, replace the lock with your own, and place a notice on the door of the property as a message to the tenant when they return. The notice informs the tenant that you have repossessed the property, and they need to contact you if they want to collect their belongings.

You should also include a photocopy of the police report to show that the premises were entered legally, and the tenant has no grounds to claim you were trespassing.

After you have obtained a court order to repossess your rental property, you can change the locks
After you have obtained a court order to repossess your rental property, you can change the locks

 

Step 9: Recover the outstanding payment

After you have taken back the property, can you still recover the outstanding rental amount from the ex-tenant?

If your court order was granted under the Distress Act, you can auction the tenant’s belongings left behind in your property, but it may not amount to much. You can also still further sue the tenant in court to recover your lost rentals, as well as any unpaid utility bills, cleaning and clearing expenses, as well as for other losses or damaged goods.

However, your chances of successfully recovering the cost will be low, especially if the tenant is no longer contactable. If the tenant is a foreigner who has left the country, it’s even less likely you will get your unpaid rental back.

In most cases, your best bet is to move on. You should already have forfeit their security deposit, so use it to fix up the property and put it back on the rental market as soon as possible.

 

Conclusion: When it comes to collecting rent, prevention is better than enforcement

In Malaysia, there are no specific regulations governing non-payment of rent. The eviction process is also time consuming and expensive.

In practice, landlords will rarely take the legal path to evict a tenant. The more common approach is to negotiate a revised payment structure with the tenant, or offer them help to move out peacefully.

In the end, your best bet to avoid non payments is to find a good tenant in the first place. Learn more about your potential tenants by asking for references from their employer, or checking their public social media profiles.

Most important of all, you should have a clear tenancy agreement in place to protect your interests in case of late payments or non-payments. See a sample Malaysian residential tenancy agreement here.

By learning more about your potential tenants, and having a well-defined tenancy agreement in place, you can prevent the headache of late payments later.

 

This article is written for informational purposes only. You are encouraged to seek professional legal help when it comes to enforcement of your tenancy agreement.

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