Landlords’ association to counter bad tenants?

Receiving regular rental income as a landlord is the dream of many property investors. But that dream can easily turn into a nightmare. It is best to prevent this from happening and Chris Tan, managing partner of Chur Associates, shares some preventive steps a landlord can take.

Speaking on “Nightmares of a Landlord: The Legal Recourse” at The Edge Investment Forum on Real Estate 2009, Tan said preventing potential tenancy problems becomes critical, especially in an environment where laws tend to favour the tenants when there is a dispute. Taking legal action may be a lengthy process and can become complicated.

Setting up a landlords association may therefore level the playing field a bit more. After all, Tan pointed out, there is the Real Estate & Housing Developers Association (Rehda), which represents developers, and the National House Buyers Association (HBA) for homebuyers, so why not an association for landlords?

Landlords united
An association will provide landlords the opportunity to share information and experiences with each other. Information on tenants can be compiled into a database. “This will be helpful in the tenant screening process. There can even be a blacklist of problematic tenants to avoid. Those on the good tenants list, on the other hand, can be given favourable rental terms,” he said.

A landlords’ association can also provide landlords better collective bargaining power in getting tenancy insurance, which makes the tenancy bankable. For example, if you have a property that is rented for three years at RM1,000 per month and you are able to buy insurance for RM36,000 to cover that period, banks would more likely give you a loan based on the tenancy to buy or invest in other properties or assets, Tan explained.

Looking at the big picture, an association can also lobby for new rules to better regulate the landlord-tenant relationship. Better and fair regulations can help make Malaysia a more attractive place for international companies to set up office here and for foreign investors to invest in properties in line with what Malaysia Property Inc (MPI) is trying to achieve. MPI is a joint public-private sector initiative to promote Malaysian real estate internationally.

Tan’s experience in real estate comes through his involvement in the International Real Estate Federation (Fiabci), both regionally and locally. He was part of a technical committee in the Prime Minister’s Department to devise strategies to stimulate the property sector iand helped formulate the MPI blueprint.

Classic cases and prevention
Cases of nightmarish tenants that drive landlords up the wall are varied. However, the key ones are tenants not paying rent on time; who disappear and cannot be found; overstay and won’t leave; use the premises improperly, like setting up an unsavoury business, and not taking reasonable care of the premises.

While these can send shivers down any landlord’s spine, Tan suggested some preventive measures.
Screening a potential tenant is important, and is now easier thanks to the Internet. Using any popular search engine, one can find information through social network programmes like Facebook and MySpace, where entire histories and exploits can be seen and read, he said.

Next is to count the real cost of renting, such as factoring in quit rent, assessment, maintenance cost if it is a strata development, and so on.

Drafting a comprehensive tenancy agreement is also important. “There is no such thing as a standard tenancy agreement,” said Tan. Don’t assume anything and be sure to check every clause to ensure no stone is left unturned. “There is a Chinese saying: You have bought the whole chicken, why spare the soya sauce?” Tan quipped.

Ask for sufficient security as well. Following the normal rental practices is not a good reason to not ask for more security if warranted. This could mean losing a potential tenant, but then again, it could save one headaches in the future. “You are free to do whatever you want,” Tan explained, refering to demands made on tenants. The only thing stopping people from asking for more, he shared, is mindset.

Lastly, hire experts. Tan gave the example of hiring a property manager to manage your property if you are in KL and your property is in Penang. Moreover, lawyers and real estate agents will be able to provide valuable advice, especially if you have never been a landlord, he added.

Legal remedy
If a tenant from hell does turn up, there are several legal avenues available.

There is the forfeiture of the deposit. Hence, asking for more security may not be a bad thing.

A landlord can sue on the covenant of pay which, under civil law, allows a landlord to charge double rent. However, enforcement can be slow, Tan conceded.

Under the Special Relief Act, Sections 7 and 8, Tan explained, property owners can take “action for distress”, whereby, with a court order, an owner can enter his/her tenant’s premises, take possession of all of the tenant’s assets and dispose of them to pay the rent. The involvement of bailiffs and the police is required to ensure nothing goes wrong. Nevertheless, this can be very time-consuming.

Lastly, one can apply for an eviction order, which can also take some time to enforce provided the other party does not counter with legal action as well.

The current set of remedies can take a long period. Also, in most cases, the tenants seem to always win against the landlord, he said.

Where to go from here
The idea for a landlords’ association is still in gestation. To find out what the real situation is with landlords in the country, Tan asked the participants of the forum to join the hi5er club, an online information-sharing community hosted by Tan’s company, Chur Associates, on a three-month trial. During these three months, the site will focus on the landlord and tenant issue.

Participants will receive information on starting a landlords association, compare models, be given toolkits, participate in surveys and much more.

At the end of the three months, Tan will evaluate the data collected and publish a report based on his findings. If it seems viable and feasible for a landlords association to be formed, Tan will seek a partner to spearhead this initiative. More information can be found at www.hi5er.churassociates.com.

While some will look at a nightmare as a problem, it can be a blessing in disguise for others as it would push one to find a solution to an impasse. Tan’s innovative landlords’ association may be the wedge that sets captive landlords free to have pleasant dreams once again.



This article appeared in City & Country, the property pullout of The Edge Malaysia, issue 750, April 13-19, 2009.