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KYB Case Update: The Importance of Renewing Your Tenancy On Time

Introduction It is a usual provision in a tenancy agreement for a tenant to have an option to renew or to extend the tenancy period. The provision would usually also specify the time period to exercise the option to renew as the rental rate for the renewed or extended tenancy period (whether it be agreed up front, subject to a cap or subject to mutual agreement between parties at the material time the option is exercised). In Keris Electrical Sdn Bhd v Millenium Substrates Sdn Bhd [2023] MLJU 324, a dispute arose between the Landlord and the Tenant as a result of the Tenant’s failure to (again) exercise its option to renew its tenancy.


Salient Facts


1st Tenancy: The Tenant and the Landlord entered into a tenancy agreement for a period of 2 years from 15th January 2018 to 14th January 2020 ("1st Tenancy Agreement"). Notwithstanding that the 1st Tenancy Agreement contained an express provision granting the Tenant an option to renew the 1st Tenancy prior to the expiry of the 1st Tenancy, the Tenant failed to exercise the option but continued to occupy the premises.


2nd Tenancy: Subsequently on 30th July 2020, the Tenant and Landlord entered into a second tenancy agreement for a period of 2 years commencing from 15th January 2020 to 14th January 2022 ("2nd Tenancy Agreement"). Similar to the 1st Tenancy Agreement, the 2nd Tenancy Agreement also contained an express provision granting the Tenant to renew the 2nd Tenancy prior to the expiry of the 2nd Tenancy. Again, the Tenant failed to exercise the option when the 2nd Tenancy expired on 14th January 2022.


1st Notice to Vacate: The Landlord through its solicitors issued a notice dated 11 March 2022 demanding the Tenant vacate the premises, deliver vacant possession and for the Tenant to pay double rent from 15th January 2022 until vacant possession has been delivered. The Tenant ignored the notice but continued to occupy the premises and pay rent at the usual rental rate applicable during the 2nd Tenancy. The Landlord continued to accept these payments.


2nd Notice to Vacate: A second notice dated 11 August 2022 was issued giving the Tenant a final notice to vacate, deliver vacant possession and pay double rent for all the preceding months less the amount which the Landlord has accepted.


Issues


The High Court considered the following three (3) issues:-


(a) whether the Landlord is entitled to vacant possession and double rental arising from the Tenant’s conduct;


(b) whether the previous conduct of the Landlord in renewing the 1st Tenancy Agreement gave the Tenant a legitimate expectation that a third tenancy agreement would be executed upon the expiry of the 2nd Tenancy Agreement; and


(c) whether the Landlord’s acceptance of rental after the expiry of the 2nd Tenancy Agreement could amount to a waiver and preclude a claim for double rental.


High Court’s Decision*


On the first issue, the High Court held that:


"…bearing in mind that the Defendant does not dispute that it has yet to vacate the said premises, and the fact that no new tenancy agreement has been agreed upon or executed, then in my view, the Plaintiff is clearly entitled to double rent"


Premised on the above, the High Court dismissed the Tenant’s contention that the delay of 2 months in the issuance of the 1st Notice to Vacate should disentitle the Landlord from claiming double rental.


On the second issue, the High Court decided that the argument of legitimate expectation was “bereft of merit” and held that:


“…if the Defendant intended to continue with the tenancy of the said premises, upon the Defendant receiving the first notice to vacate from the Plaintiff in March itself, it was then incumbent on the Defendant to immediately intimate its intention to renew and to negotiate a new rental and tenancy agreement with the Plaintiff. As to why the Defendant did not do so but chose to remain silent for another five (5) months until the second notice was served on them is beyond me


On the third issue, the High Court found that the Landlord’s acceptance of the payments neither amounts to a waiver nor does it disbar the Landlord from claiming double rental, citing the principles elucidated in the Federal Court case of Wee Tiang Yap v Chan Chan Brothers [1986] 1 MLJ 47 which was applied by the Federal Court yet again in Rohasaassets Sdn Bhd (formerly known as Wisma Perkasa Sdn Bhd) v Weatherford (M) Sdn Bhd & Anor [2020] 1 MLJ 557.


Takeaways


Certain contractual provisions are designed to grant legal rights for the sole benefit of one party. However, the failure to exercise such legal rights within the prescribed time limits would not only result in losing the ability to exercise those rights altogether but may also cause liabilities to arise.


Where a party has failed to exercise a legal right and foresees potential liabilities, it is advisable to immediately seek legal advice because further delays could exacerbate the situation or limit its options.


*The Tenant has filed an appeal against the decision of the High Court


This article is authored by Alden Yeoh Shuen Chun, the co-founder and partner of Messrs. Kuruvilla, Yeoh & Benjamin together with Nivetha Sri Shanker who is currently a paralegal with the Firm. Alden Yeoh leads the Corporate & Commercial practice group.


For more information, please visit www.kyblegal.com or please feel free to contact Alden Yeoh at alden@kyblegal.com.


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KYB Case Update - The Importance Of Renewing Your Tenancy On Time
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