Property Nightmare Stories #2: A Swindler’s Set-Up

Diane Foo Eu LynnFebruary 24, 2017

 

Property investment is the hype but property nightmares are often shoved under the carpets. In this series of Property Nightmare Stories, PropertyGuru gets down on the ground to find out firsthand what can happen when the tenant or landlord voids a contract.

 

This is a scenario in Ken Rimba Shoplot @ Shah Alam Seksyen 16. John* is in a ‘kedai runcit’ retail business where people can buy products like rice, Milo and cooking oil at discounted prices under its membership program. Business was good and due to limited space, John was keen to expand to the next unit for his business operations.

John agreed to rent a two-storey shop-office (next to his kedai runcit) for RM4,000 and immediately paid RM4,000 in cash as booking fees and provided all the required documents promptly.

John also requested for the key immediately to begin renovations (even before the tenancy agreement was signed) to make full use of the rental free period; and Marcia*, the Landlord gladly agreed as everything seemed to be in place.

Shortly later, the shop was under renovation and in progress for its Grand Opening. Agent Patrick* tried to follow up with John to sign the tenancy agreement but was turned down due to John’s busy schedule.

During the Grand Opening, the event was glorified by the attendance of VIPs. After the Grand Opening, Agent Patrick visited John at the shop-office again to get the tenancy agreement signed and to collect the remaining payment.

Caught by surprise, the shop was closed and a passer-by claimed that a lorry came days ago to remove all the belongings in the market display. John had technically fled with the goods!

Life Has to Go On

There was “rubbish” in the unit and Marcia did not dare to enter as she was afraid of a ‘loss of valuable item’ claim from John. After waiting tolerantly for 2-3 months, Marcia proceeded to open the roller shutter and clean up the mess. The unit was badly vandalised by frustrated victims of the scam who enrolled into the membership program.

The estimated damage cost to Marcia was approximately RM3,000. The unit was left vacant for two years and was only rented out recently.

*Names changed to protect privacy

Solution

One very important aspect that readers may already have picked up on in this scenario is that an agreement was not in place. Legally speaking for a tenancy, a written agreement is not a must in law. It can be oral or by word of mouth, and that is perfectly in order. Practically speaking however, it is always advisable to have a written agreement.

Without a tenancy agreement, the agency’s booking form is crucial as it sets out the preliminary part of the tenancy. Most will stipulate that upon acceptance of the booking form, both parties are required to sign the tenancy agreement within 7 days (for example).

If the tenant defaults like in this case, the landlord will have the right to forfeit the deposit paid. If the landlord defaults, the tenant will have his deposit refunded and a compensation sum received. This is generally speaking from a well-worded booking form.

On the surface, accepting RM4,000 from John and only incurring RM3,000 as damage cost seemed fine. On a closer inspection however, Marcia suffered more loss as she had to incur the initial agent fees for procuring the tenant and subsequently the unit was left vacant without rental for two years. Not to mention on the legal costs for any possible recovery action against John.

Marcia may bring an action to Court for the loss and damage suffered. However, Marcia would need to weigh the time, effort and money spent to claim against John as John has already absconded.

The unfortunate event may be prevented, or rather the loss and damage of the said unfortunate event may be kept to the minimum, if Marcia had done the following:

a) Insist that John:

i) Signs a tenancy agreement spelling out the agreed terms and conditions;

ii) Pay the requisite security and utilities deposits; and/or

iii) Pay a refundable renovation deposit (if the renovation is extensive);

Before passing the key(s) of the Demised Premises to John.

b) Request a renovation plan from John (particularly if the renovation is extensive) before commencement of the renovation.

The above actions will not only give some form of money security to Marcia as a Landlord but also to determine whether John is a genuine or “complying” tenant as most genuine and “complying” tenants would comply fully or to a large extent, the terms and conditions as requested by the Landlord or of the tenancy agreement.

Most of the time, Landlords would rush to “give in” to the requests of Tenants to secure a Tenant. To avoid the unfortunate event as above, Landlords need to be reminded that if a Tenant has difficulty in complying to the standard requirements as above, it may be advisable to the Landlord to reconsider letting out the Demised Premises to the said Tenant.

To visit some of the other nightmares, look for the one you resonate with most:

 

 

This article was contributed by Alvin Teo (Advocate & Solicitor- Messrs Mak, Ng, Shao & Kee) and Nicole Ng (Advocate & Solicitor- Messrs Elizabeth Siew & Co). For more information or legal assistance, contact or email them at 07-3341922 (alvinteo@mnsklaw.com) or 03-8075 0901 (nicole.ng@esc.legal).

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