What Happens If Your Commercial Tenants Won't Pay Rent On Time?
- Ambriel
- Jul 15, 2022
- 5 min read
Is becoming a Landlord more trouble than it is worth?
In fact, even after you have found a suitable tenant for your rental property in Malaysia, there are still problems everywhere.
The most common problems include tenants who use the premises for unapproved purposes, or those who don’t take reasonable care of the facilities and the property itself.
But the most common problem of all? Tenants who don’t pay rent on time and rent are late for a long time, maybe a few months or one year.
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
Remember that every tenancy contract can be different, so you need to make sure that your tenant is REALLY in breach of contract BEFORE you take any action.
For example, does the contract say that the rent is expected by the 10th of every month, but it’s only the 7th? Or, is there a clause that gives the tenant a grace period of 7 days or 14 days?
Once you are sure that they are breaking the terms of the tenancy, you can proceed to the next steps.
Step 2: Communicate with your tenant first
It is already considered a breach of the agreement, if the tenant is late once,
Talk to your tenant first before you take any action. For instance, they were 2 days late for the first time in 12 months. So, don’t immediately consider kicking out a tenant just because they were late few days.
Firstly, just give them a friendly call, or remind them by sending a message through Whatsapp or email. Or, you may ask your real estate agent to contact or liaise the tenant on your behalf (if you appoint an agent to handle your property). Usually, it’s an honest mistake where the tenant may have forgotten to pay, so the tenant will pay up right away.
Step 3: Offer a revised payment structure
But, if the late payments are happening more regularly, then the tenant could be in financial difficulties. Maybe they got fired, or are facing a medical emergency with a huge cost.
If you have a good relationship with this tenant and want to keep them on, it is up to you whether you want to continue the tenancy. If yes, you can create a revised payment scheme with them.
Perhaps you can offer a discount if the tenant pays all outstanding rent in full. For example, if the tenant can settle the rental, a total of RM 1,800 for 3 months, then you may offer a discount of RM 200-RM 300 for them.
Step 4: Offer discounts for them
On the other hand, if the tenant REALLY cannot pay the rental, you may also prefer to cut your losses and let them move out as soon as possible, even if it means not getting the full outstanding payment.
In these circumstances, you may give them a discounted rate if they settle all their outstanding rent. Taking a diplomatic approach that does not involve any lawyers and the courts is preferred by landlords and property investors. After this, you may rent out your property to a new tenant.
Step 5: Issue a letter of demand
If the above steps don’t work, and the tenant did not make any payment even after repeated messages, you can issue a letter of demand.
The letter of demand is considered as a warning letter, which means, if the payment is not made by a certain date, the landlord reserves the right to pursue the outstanding amount through legal methods.
Take note: You have to send the letter via registered mail so that you have proof that the tenant received it. You can also screenshot the emails, and send to tenants via Whatsapp, or SMS messages as reminders for them.
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.
Step 6: Issue a notice of possession
You can begin the eviction process if you are still unable to get the rental. 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 - 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 of possession should include the following:
The reason (i.e. breach of tenancy because did not pay rent for few months)
What you have already done (i.e. send letter of demand and repeated reminders through email and Whatsapp)
The time given before they need to leave the premises (e.g. 14 days)
Step 7: Get the court’s approval
You may ask the courts for approval to expel the tenant, if the tenant is ignoring your letter.
To do so, you will need a lawyer to help you get permission from the court. And the courts will need a valid reason to grant the eviction order.
Step 8: Recover the premises with a police officer present
After you have the court order, you can make a police report. You need a policeman to accompany you when you re-enter your property.
You CANNOT break the lock and re-enter the premises WITHOUT a policeman present. If not, you will get sued by the tenant.
Once you have entered the premises, you should take photos as evidence. Why do so? This is to avoid the tenant claiming later on that something was taken or stolen.
Next, you may replace a new lock, and put a notice on the door 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.
Step 9: Recover the outstanding payment
Can you still recover the outstanding rental amount from the ex-tenant, after you have taken back the property ?
If your court order was granted under the Distress Act, you can auction the tenant’s belongings left behind in your property. 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. It’s even less likely you will get your unpaid rental back if the tenant is a foreigner who has left the country.
But you still have the security deposit, so use it to refurbish the property (if needed) and put it to online listing as soon as possible to find a new tenant.
In the end, your best bet to avoid non payments is to find a good tenant in the first place. Most importantly, you should have a clear and proper tenancy agreement in place to protect your interests.
Our team and expertise can help you smoothen your property management. We enables you to figure out your business needs, the special specifications you are looking for in the commercial properties within your budget. Click the button below to reach us.
Comments