Difference between a tenancy vs lease agreement vs a license

License

A license is a document stating that permission is granted by a party (“licensor”) to another party (“licensee”) to occupy a property. The licensor does not hand over exclusive possession of the property but retains his or her right to use it. In Street v Mountford [1985] 2 All ER 289:

“The issue whether or not exclusive possession has been granted is the test for distinguishing between a lease and a license.”

Tenancy

A tenancy may be simply defined as a letting of land for a term not exceeding three (3) years. A tenancy is not a registrable interest in land and is known as a “tenancy exempt from registration” under Section 213 of the NLC 1965.

In the eastern states of Sabah & Sarawak, a tenancy is substantially a sublease not exceeding one year which need not be registered in order to be valid. See Section 105 and Section 161 of the Sabah and Sarawak Land Ordinance & Code respectively.

The three essential characteristics of a tenancy are as follows:

1. (a) The tenant is given the exclusive possession of the demised premises i.e. he has the right to exclude all persons, including the landlord, from the demised premises
2. (b) The parties must have intended to create a tenancy and not a license; and
3. (c) A tenancy must be granted for a definite period or for a period not exceeding which is capable of being ascertained

As per Lord Templeman in Street v. Mountford [1985] 2 All ER 289:

“…To constitute a tenancy the occupier must be granted exclusive possession for a fixed or periodic term certain in consideration of a premium or periodical payments. The grant may be express, or may be inferred where the owner accepts weekly or other periodical payments from the occupier…”

Although a tenancy is not capable of being registered, it may however be protected by way of an endorsement on the register document of title – Section 213(3) NLC 1965. Once such an endorsement has been made, the tenancy binds any subsequent purchaser i.e. where the sale and purchase agreement is entered into after the endorsement.- See Than Kok Leong v Low Kim Hai [1983] 1 MLJ 187

Tenancies may only be endorsed on the title. As such tenancies are therefore never taken as security for loans granted by financial institutions

The rights and obligations of the parties under a tenancy are laid down either expressly by the parties or , in the absence of any express agreement, impliedly by law.

A tenancy comes to an end when:

1. (a) The term under which the tenancy is held has expired;
2. (b) The tenancy is surrendered to the person for the time being entitled to the reversion expectant thereon;
3. (c) A valid notice of quit is served; and
4. (d) The tenancy is forfeited by the landlord where there has been a breach of a term of the tenancy or where the tenant has been adjudicated a bankrupt or in the case of a company gone into liquidation.

Oral tenancy agreements are a legal method of tenancy agreement. These types of agreement are not recommended as the tenant and landlord can find problems occur, for instance with rent payments and deposits.

An agreement still exists even if there is only an oral agreement between the tenant and the landlord. For example, it may have been agreed at the start of the tenancy how much the rent would be and when it is to be paid, whether it includes fuel and bills such as water rates and who is allowed to stay in the property. Once a landlord has accepted rent from a tenant then a previous verbal agreement now becomes a legal agreement.

Oral agreements can be difficult to enforce because there is often no proof of what has been agreed. For instance, a particular problem may arise which the agreement did not cover. As with written agreements, oral agreements also provide the landlord and tenant with certain rights, but the difference is that they could be more difficult to enforce. If a dispute went to the courts, there would be no written tenancy agreement as evidence, so this could result in one of the parties not getting the rights they believe were verbally agreed upon at the start of the tenancy.

It is therefore generally in both the landlord and the tenant’s best interests to have a tenancy agreement in writing to ensure that both sides understand their rights and responsibilities. An agreement in writing will also prevent disputes over what the verbal agreement contained.

Lease

In Peninsular Malaysia, a lease is a letting of land for a term exceeding three (3) years and is a registrable interest as provided for under Sec. 221(2) and 227 of the NLC 1965.

In Sabah and Sarawak, a lease is referred to as a sublease and is one exceeding one (1) year. Only registrable sub-leases are valid as per Section 104 and 158 of the Sabah and Sarawak Land Ordinance and Code respectively.

A lease may be defined as an interest in land granted by the lessor, whether he is the owner of the land or not, to a lessee for a certain period. The main characteristics of a lease are as follows:

1. (a) The lessee is given the right to exclusive possession of the demised premises, i.e. the lessee has the right to exclude all persons, including the lessor from the demised premised;
2. (b) The parties must have intended to create a lease and not a licence. This intention must be evidenced in writing via a written agreement or by the conduct of the parties;
3. (c) A lease must be granted for a definite period or for a period which is capable of being ascertained;
4. (d) The lease is granted in consideration of the payment of rent.

A lease may be granted by way of an oral or written agreement. It only has a legal effect upon registration of an instrument in Form 15A or in the case of sublease, Form 15B of the NLC 1965.

Where the land is subject to a charge, the written consent of the chargee must be obtained before the lease can be granted. (See Section 226 of NLC 1965).

A lease cannot be granted in perpetuity. Section 221(3) of the NLC 1965 provides that the maximum period for a lease is 99 years in respect of the whole of the land and 30 years in respect of part of the land. (See Siew Soon Wah v. Yong Tong Hong [1973] MLJ 133)

The rights and obligations of the parties to a lease are laid down either expressly by the parties themselves or, in the absence of any express agreement, impliedly by law. The parties to a lease or sublease may incorporate the provisions as set out in the Sixth Schedule of the NLC 1965 in their agreement subject to any modification as they think fit. (See Section 229 of the NLC 1965).

In the absence of any express provisions, certain implied agreements are applicable to every lease or sublease. Section 230 of the NLC 1965 provides that the following agreements shall be implied:

1. (i) That lessee or sublessee will pay rent reserved by the lease or sublease and observe and perform all the express or implied conditions to which the land is subject.
2. (ii) That the lessor will pay all rent due or falling due to the State Authority in respect of the property.
3. (iii) In cases of subleases, the sublessor will pay the rent reserved by the lease or sublease under which he holds; and that if the sub lessee pays any of the said rent, he shall be entitled to set off the sum so paid against the rent payable by him under the sublease.

Section 231 of the NLC 1965 provides that in the absence of any express provisions to the contrary, the following agreements on the part of the lessee and sublessee are to be read into the lease or sublease:

1. (i) To pay all rates, taxes and other outgoings falling due in respect of the property except rent due to the State Authority and any other outgoing which is payable exclusively by the lessor;
2. (ii) To keep the demised property in repair
3. (iii) To permit the lessor or his agent to enter upon the property and examine its condition;
4. (iv) Not to transfer or charge the lease, or sublet or otherwise part with the possession of the property without prior written consent of the lessor.

Section 232 of the NLC 1965 provides that in the absence of any express provisions to the contrary, the following agreements on the part of the lessor and sublessor are to be implied into every lease or sublease:

1. (i) That the lessee is allowed peaceful and quiet possession and enjoyment of the property without disturbance from the lessor;
2. (ii) Where the lease relates to a part of any building, that the lessor will keep in repair the roof, main walls and main drains, and any common passages or installations;
3. (iii) To abate the rent whether the property is rendered unfit for occupation or use by any event not caused by the negligence of the lessee.

A lease ends in any one of the following circumstances:

1. (a) The term of the lease has expired;
2. (b) The lease is surrendered;
3. (c) A valid notice to quit is served; or
4. (d) The lease is forfeited by the lessor where there has been a breach of any provision of the lease or where the lessee has been adjudicated a bankrupt or in the case of a company gone into liquidation.

Leases are registrable with the Land Office and the lessees have a registered interest in the land upon registration. The interests of a lessee is better taken care of/protected compared to a tenant under a tenancy as they only have an equitable interest in the land, that is, their interests are subject to those with registered interests. However, all tenants/lessees are entitled to the quiet enjoyment of the property subject to the terms and conditions of the governing written documents.

A lease can be registered with the Land Office by submitting a duly completed Form 15A NLC with registration fees.

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