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Case Update: When Your Landlord Refuses to Return Your Deposits After the Expiry of a Tenancy

Updated: Mar 20, 2022

Introduction


On 21.06.2021, the High Court in Kuala Lumpur High Court Civil Suit No. WA-22NCVC-832-12/2020: Le Apple Boutique Hotel (KLCC) Sdn. Bhd. v. PGCG Assets Holdings Sdn. Bhd. ordered the Defendant/Landlord therein (“Landlord”) to refund to the Plaintiff/Tenant therein (“Tenant”) deposits in the sum of RM1.65 million within fourteen (14) days from the date of the Judgment.


This Case Update shall highlight some of the key aspects of the High Court’s decision.


Material Background Facts


In 2014, the Landlord and the Tenant entered into a tenancy agreement (“the Tenancy Agreement”). Following the expiry of the Tenancy Agreement in 2020, the Tenant commenced proceedings against the Landlord for:-


  1. a claim for unjust enrichment in the sum of RM19,644,322.00 being the total sum of the Tenant’s capital expenditure in respect of the demised premises (“the Tenant’s Claim for Unjust Enrichment”); and

  2. a claim for the return of the security deposit and the utility deposit paid, in the total sum of RM1,650,000.00 (“the Tenant’s Claim for Return of Deposits”).


After close of pleadings, the Tenant filed an application for summary judgment in respect of the Tenant’s Claim for Return of Deposits on the basis that the Landlord was contractually obliged to return the deposits paid to the Tenant upon the expiry of the tenancy and upon delivery of vacant possession of the demised premises. The Tenant also contended that the Landlord’s continued retention of the deposits paid was without any basis in law or in fact.


Summary Judgment – No Trial Required


When an action is commenced in Court by way of a writ of summons, the ordinary procedure is for the suit to proceed to full trial where each party would have an opportunity to produce their respective witnesses to put forward their case. The summary judgment procedure is an exception to this rule. Here, an applicant would invite the Court to determine a dispute on affidavit evidence alone without the need for a full trial.


The basic requirements for an applicant to fulfil before applying for summary judgment are:- (i) the defendant must have entered an appearance; (ii) the statement of claim must have been served on the defendant; and (iii) the affidavit in support of the summary judgment application must comply with the requirements under Order 14 Rule 2 of the Rules of Court 2012. Once an applicant fulfils these basic requirements, the burden will shift to the defendant to raise ‘bona fide triable issues’ to warrant a full trial. If the Court finds that there are no ‘bona fide triable issues’ raised, the Court will accordingly allow the application for summary judgment.


High Court’s Reasons for Allowing Summary Judgment against Landlord

First, in relying on Sections 52 and 53 of the Contracts Act 1950, the High Court held that – as the provision for repayment of deposits and the provision concerning renovations towards the demised premises were reciprocal promises under the tenancy agreement – it would therefore follow that the clauses ought to be read separately and may also be determined separately. In other words, the High Court held that the Tenant’s Claim for Return of Deposits could be determined separately from the Tenant’s Claim for Unjust Enrichment (which shall proceed for full trial for determination).

Secondly, in deciding the issue of whether the Tenant is entitled to the return of the deposits paid, the High Court recognised that the evidence adduced showed that the Tenant had indeed paid the deposits to the Landlord at the commencement of the tenancy and, in this respect, no reason was advanced by the Landlord to justify why the deposits ought to be forfeited in part or in full.

Thirdly, the High Court found that Clause 6(d) of the Tenancy Agreement (i.e. the provision concerning the return of deposits) was clear and unambiguous in that the Landlord has to return the deposits paid to the Tenant if the Tenant had complied with all the terms of the Tenancy Agreement. In this respect, the High Court observed that “there is nothing in the defence of the Defendant (Landlord) to indicate that the Plaintiff (Tenant) has breached any of the terms of the tenancy agreement”.


Key Takeaways

Landlords and tenants alike ought to take an interest in this decision of the High Court as it does make a few principles patently clear, namely:-


  • when parties enter into a tenancy agreement, it is in the interests of every party (be it landlord or tenant) to ensure that the contractual provisions therein are drafted clearly and without ambiguity especially where they relate to the treatment of deposits during the term of tenancy and following the expiry thereof;


  • where a tenancy agreement contains express provisions compelling the return of deposits paid after the expiry of the tenancy, the trend of the Malaysian Courts are to uphold the same, unless landlords have valid reasons to withhold or forfeit the deposits;


  • one of the options available to aggrieved tenants who have not had their deposits returned to them following the expiry of a tenancy is to commence a claim in Court against the Landlord and thereafter apply for summary judgment, to expeditiously and economically secure a favourable judgment; and


  • landlords ought to bear in mind that, unless they have strong and valid reasons to withhold or forfeit the deposits paid by a tenant pursuant to a tenancy, the deposits ought to be returned within the timeline specified in a tenancy agreement.


Our Partner, Edward Kuruvilla, successfully represented the Tenant in the above proceedings. The full Grounds of Judgment of the High Court have since been reported and may be accessed at Le Apple Boutique Hotel (KLCC) Sdn. Bhd. v. PGCG Assets Holdings Sdn. Bhd. [2021] 11 MLJ 268; [2021] MLRHU 1089; [2021] 1 LNS 1293. The Landlord has since filed an appeal against this decision of the High Court which is scheduled to be heard mid-2022.


This article is authored by Edward Kuruvilla who leads the Firm’s Dispute Resolution practice group. For more information, please feel free to contact Edward Kuruvilla at edward@kyblegal.com or visit the Firm’s website at www.kyblegal.com.


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