Property Nightmare Stories #5: Private arrangement between tenants – Less hassle at the moment but more issues in the future?

Diane Foo Eu LynnMay 26, 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.

 

Location: Valencia Walk Up Apartment @ Sri Muda, Shah Alam

Jasmine took over the tenancy from her friend, Kenny (who has signed the tenancy agreement with the landlord) and paid the deposit to offset Kenny’s deposit so that Kenny as the actual Tenant can walk away freely.

Later, the Landlord, Siti, found out and agreed to this arrangement as she thought it was relatively simple and hassle-free. Jasmine was allowed to move into the Property immediately.
Is this really of less hassle?

Issues and options

On the face of it, this does sound like a simple and hassle-free arrangement as all parties are on friendly terms. Issues will only arise when things start to get bitter amongst the parties and that is when the parties wished that everything was done in the ‘less-simple’ manner at the first place.

Let’s look at Kenny, Jasmine and Siti’s positions separately.

1. Firstly, Kenny has assigned his rights as a tenant to Jasmine. That is to say, Kenny has stepped out as a tenant and Jasmine has stepped in as a new tenant to the property.
Kenny should note that:

i. This arrangement may not be allowed and must be made with the consent of Siti. In most tenancy agreements, consent of landlord is needed before any assignment or sub-letting.

ii. If the tenancy agreement between Kenny and Siti clearly states that assignment shall only be allowed with consent, Kenny has breached the tenancy by making a private arrangement with Jasmine and Siti would have a right to terminate the tenancy with Kenny, forfeit the Deposit that Kenny has paid and sign a fresh tenancy with the prospective tenant, who may or may not be Jasmine.

Kenny may take into account these options:

i. Assuming that assignment is allowed or consent of Siti has been obtained, Kenny can execute an Assignment cum Novation Agreement which is a three-party agreement between Kenny, Siti and Jasmine. Thus, Kenny would novate its rights to Jasmine and Jasmine technically steps into Kenny’s shoes; or

ii. If the tenancy agreement between Kenny and Siti allows for early termination with notice, Kenny can terminate the tenancy with Siti and Jasmine will then sign a fresh tenancy with Siti. Siti however, has no obligation to sign this new tenancy with Jasmine but it would save her hassle of looking for a new tenant.

iii. With these two options, Kenny will not be in breach of the agreement and his Deposit will not be forfeited.

2. As for Siti, allowing Kenny to move out and Jasmine to move in may seem like the quickest and easiest option now. However, as no tenancy agreement has been signed with Jasmine, issues may arise in the future when there is a dispute. For example, Jasmine may have damaged the fixtures and fittings in the property but when required to repair/make good the damage by Siti, Jasmine may claim that she is not responsible as she is not the tenant under the tenancy agreement (which was between Siti and Kenny).

Siti should:

i. Sign an Assignment cum Novation Agreement with Kenny and Jasmine; or

ii. Allow Kenny to terminate the tenancy agreement with early notice, return his Deposit (subject to deductions due to any other breach by Kenny), sign a new tenancy agreement with Jasmine (or any other prospective tenant).

iii. With this, the rights of Siti will be better protected as a landlord.

3. For Jasmine, signing a fresh agreement with Siti would be of benefits to her. Let us look at two separate scenarios.

i. Assuming that assignment is not allowed and Kenny has ‘secretly’ allowed Jasmine to move into the property, Jasmine will be considered an illegal tenant. Siti would have the right to evict Jasmine when she finds out. Jasmine may also lose the deposit that she has paid Kenny for if he cannot be found.

ii. Another scenario would be that if assignment is allowed and Siti is aware of Jasmine moving in but no tenancy agreement is signed. Although a tenancy can be without writing, when Siti wants to enforce her rights as a tenant in the future (right to peaceful enjoyment of the property, right to reclaim her security deposit at the end of the tenancy etc), it would be more tedious to do so.

4. Having a well-drafted and signed tenancy would no doubt provide comfort and safeguard to both landlord and 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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