Leases vs tenancies – which wins?

bumbung_leasestenancies

As I have mentioned in my previous article entitled “Tenancy Agreements: The Need For One and Its Major Terms to Look Out For”, renting of a property which exceeds a rental period of 3 years will constitute a lease. A lease can be granted by the proprietor of the land (“lessor”) to another person (“lessee”) and such can be done either orally or by way of a written instrument in any form whatsoever.

Under the National Land Code (“NLC”), all leases must be registered with the land office. Tenancies on the other hand need not be registered as it is exempted from registration (section 213(2)(b) of the NLC). Any lease that is not registered is considered to be void. The lease will then be reflected with an endorsement on the title deed of the property. Such is done to protect the interest of the lessee as it gives notice to the public.

For example, in the event the landlord wishes to sell the property, the lease will be stated in the land search whereas a tenancy would not when the new buyer’s solicitors conduct a land search. The lease will bind any subsequent owner of the property. This would mean that the lessee cannot be denied the rights to occupy the property during the term of the lease and cannot be asked to vacate the property as the lessee enjoys a right of exclusive possession.

Lease is often described as a “long-term” tenancy which can go up to a maximum of 99 years. However, do note that in order to create a 99 years lease, the lease has to be for the property as a whole (section 221(3)(a) of the NLC). In the event that you are only leasing part of your land/property, you will only be able to create a lease of a maximum of 30 years (section 221(3)(b) of the NLC).

A lease can be registered with the relevant land office by submitting a duly completed and executed Form 15A by the lessor and the lessee which can be done through appointing a solicitor. A plan and description of the property needs to be attached together if the lease is only for part of the land. The registration fee for the lease at land office varies according to the state where the property in question is located.

Like tenancies, it is also important for the lessor and the lessee to enter into a lease agreement specifying the lease period and other important terms similar to that of a tenancy to protect the interest of both the lessor and the lessee. Leases are suitable for landlords who want to “lock-in” a tenant for a set period of time to ensure that for the set period of time, the landlord will have a secured rental income.

A tenancy although exempted from registration, a tenancy may also protect his interest against subsequent property dealings by the landlord e.g. sale of the property, by means of an endorsement of the tenancy in the register of the document of title to the property (section 316 of the NLC). It is stated under section 213(3) of the NLC and in the case of Than Kok Leong v Low Kim Hai that any tenancies that had not been endorsed on the register is not binding on a subsequent buyer. The endorsement can only be cancelled by the registrar of the land office if it was ordered to do so by the court or by application of the proprietor or tenant when the tenancy has expired.

So, before you decide to rent a property, do consider if you will be taking up the tenancy for a period longer than 3 years as it will determine whether it would constitute a lease or a tenancy.

“Carmen Tham is a lawyer and she is actively involved in real estate legal work. She is the managing partner of Messrs. KEAY & CO.a boutique firm located in Publika @ Solaris Dutamas with one of their major specialisations in property development, sales and purchase of property, tenancies and real estate disputes.

If you have questions that you would like to ask Carmen, please feel free to drop her an email at enquiry@keayandco.com.

Disclaimer: The information here does not constitute legal advice, please seek professional help for your specific needs.”

Find my dream home today!