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KYB Case Update: What Happens When A Tenant Prematurely Terminates a Fixed-Term Tenancy

Introduction


Generally, a fixed-term tenancy is a form of tenancy where there is an agreed duration for the tenancy and the tenant is not entitled to prematurely terminate the tenancy. In Presto Supermarkets (Subang) Sdn Bhd & Ors v Attic Holdings Sdn Bhd [2024] MLJU 442, dispute arose between the landlord and the tenant as a result of the tenant’s premature termination of the tenancy agreement by the Tenant.


Brief Facts


In 2011, Presto Supermarkets (Subang) Sdn Bhd (“Tenant”) and Citta Mall Sdn Bhd (“CMSB”) entered into a tenancy agreement for a period of 3 years from 25th June 2011 until 24th June 2014 (“Tenancy”). On 22nd November 2011, CMSB sold Citta Mall to Attic Holdings Sdn Bhd (“Landlord”) and pursuant thereto, the Landlord stepped into the shoes of CMSB as the landlord of the premise.


Pursuant to a Letter of Renewal dated 8th July 2014, the Tenancy was renewed for a further three (3) years from 25th June 2014 to 24th June 2017. In addition, the directors of the Tenant signed a Letter of Guarantee dated 15th July 2013 guaranteeing and undertaking to pay all monies owing by the Tenant to the Landlord under the Tenancy.

Subsequently on 24th June 2015, the Tenant terminated the Tenancy, ceased its operations at the premises and also failed to reinstate the premises to its original condition.


The Landlord commenced proceedings against the Tenant for breach of the Tenancy and against the directors of the Tenant as guarantors:-


  • to claim outstanding monthly rental and other charges;

  • to recover the loss of rental for the unexpired term of the Tenancy;

  • to claim double rental for holding over;

  • to claim reinstatement costs; and

  • interest of 12% per annum.


The Tenant's defence and counterclaim was that:-


  • the Landlord breached fundamental contractual obligations to ensure that the premises be fit for purpose;

  • the Landlord had rejected the Tenant’s offer to mitigate the losses and hence, there were no outstanding rentals; and

  • the guarantee was invalid and void for being the product of “duress” exerted by the Landlord.


High Court’s Decision


The High Court allowed the Landlord’s claim and held that the terms of the Tenancy are clear and should be interpreted literally.


The High Court also dismissed the Tenant’s counterclaim and held that:-


  • the Tenant has failed to prove their case that the Landlord had breached its fundamental contractual obligation to maintain and upkeep the premises to be fit for the purposes for which the premises was rented; and

  • the directors of the Tenant also failed to prove to the court that the Letter of Guarantee is invalid.


Court of Appeal’s Decision


The Court of Appeal agreed with the High Court decision and allowed the Landlord’s claims save and except for the claim for double rental.


In deciding the issue of whether the Landlord is entitled to the claim of double rental, the Court of Appeal cited the Federal Court case of Rohasassets Sdn Bhd (Formerly Known as Wisma Perkasa Sdn Bhd) v Weatherford (M) Sdn Bhd & Anor [2020] 1 MLJ 557, which held that:


  • “… To entitle the landlord to charge double rent, there must be failure or refusal by the tenant to give up possession after being told to do so by the landlord. This has to be so because the landlord’s claim is actually not rent but a penal sum which the former tenant has to pay for the inconvenience and loss the tenant causes the landlord in refusing to give up possession…”


The Court of Appeal further held that:


  • “… a claim for double rental is not a claim for compensation under contract. It is a monetary claim permitted by statute and which is penal in nature. Hence, the claim must be scrutinised with utmost care to determine the true state of affairs.”


And given that the Tenant was not in occupation of the premises after the return of the keys to the Landlord’s representatives, the Tenant could not be said to be 'holding over' as per s.28(4) Civil Law Act 1956. The fact that the Tenant failed to reinstate the premises although they sought extension of time to do so, does not equate to the Tenant being in occupation of and holding-over.


Takeaways


Where a tenant prematurely terminates a fixed-term tenancy, a landlord is not only usually entitled to claim the outstanding month rental, there may also be additional claims depending on whether the tenant is in breach of any other terms of the tenancy agreement.


There may be instances where a tenant or a landlord does not desire to be locked-in for the entire duration of the tenancy and therefore in such circumstances, the concerned party should ensure that the contract provides for a unilateral right to exit at any time during the tenancy period.


This article is authored by Celine Chern, currently a pupil of Messrs. Kuruvilla, Yeoh & Benjamin.


This article is intended to provide general information in summary form on legal topics, current at the time of first publication. The contents should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Formal legal advise should be sought in particular matters.

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KYB Case Update - What happens When A Tenant Prematurely Terminates a Fixed-Term Tenancy
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