Whoever said property was a source of passive income has never had the pleasure of dealing with a tenant one year in arrears and dodging calls!
From our experience assisting Malaysian landlords with recovering rent arrears, the process differs from a typical trade creditor – debtor relationship in three key ways.
- Higher duty of care: Tenancy agreements impose obligations on landlords that tenants can use–fairly or not–to dispute rent owed.
- Tenant rights: Tenants in arrears retain rights of occupancy and missteps can complicate recovery.
- Eviction dilemma: Letting a tenant stay risks further losses, but eviction can be a time consuming and costly process.
Our guide offers a full walkthrough for residential and commercial property owners in Malaysia to maximise their chance to collect outstanding rent while staying compliant with the law.
Of course, readers are welcome to skip the guide and reach out for a free recovery assessment!
Otherwise, let’s begin.
Key laws regarding tenant rental debts
In Malaysia, debt recovery for unpaid rent is governed by four key laws:
- Tenancy Agreement
- Limitation Act 1953
- Distress Act 1951, and
- Civil Law Act 1956
Tenancy Agreement
A tenancy agreement signed by both landlord and tenant forms the foundation of the debt collection process, and with regards to rent arrears, determines:
- grace periods for late payments
- the final amount owed
- whether either party failed to fulfill obligations
- forfeiture of deposit upon default
- circumstances that trigger the force majeure clause (if any), and
- interest rates on overdue rent or agreed Liquidated Ascertained Damages (if any)
In our experience, most landlords are familiar with key terms in their tenancy, so we’ll move straight into how the law steps in when rent isn’t paid.
Limitation Act 1953
Section 6(1)(a) of the Limitation Act 1953 sets a six-year time limit from the date the rent became due for landlords to file a claim in court. After this, any claim for unpaid rent becomes time-barred and can no longer be legally enforced.
In practical terms, this gives landlords a six-year safety net to explore more cost-effective recovery methods before filing a suit–and even then, only if it makes sense.
Distress Act 1951
Section 5(1) of the Distress Act 1951 allows a landlord to apply for a Writ of Distress to seize the tenant’s movable property in the rented premise and sell them off to cover unpaid rent preceding the date of application of the warrant.
It is not granted lightly and there are limits to property that can be seized.
Civil Law Act 1956
Section 28(4)(a) of the Civil Law Act 1956 gives landlords in Malaysia the option of charging a tenant double the rent for the months they continue to occupy the premises without permission once the tenancy ends (known as the “holding over” period).
With the law on rental recovery covered, let’s explore one of the first things any debt recovery professional will seek to establish: Probability of successful recovery.
Main steps in recovering commercial rent arrears
There are four possible steps if a case plays out in full.
Step 1: Confirm default and no tenant complaint
Confirm three things:
- rent is in default past its grace period
- there has been no complaint from the tenant about the premise
- there has been no notice from the tenant about a missed / late payment or sincere promise to make good
Step 2: Commence pre-court recovery (e.g. Letter of Demand)
In our experience, a tenant defaulting this month is likely to keep defaulting. However, we urge landlords to prioritise protecting their reputation as much as recovering what’s owed.
While we’re admittedly biased toward engaging a debt recovery law firm, the truth is an experienced lawyer ensures you strike the right balance between recovery and compliance.
Let your lawyer issue a Letter of Demand reminding the tenant to settle the rent by the
Step 3: Full repayment or negotiation
In the ideal scenario, the tenant responds positively, opening the door for both parties to discuss repayment plans or settlements.
Any bargaining chips to reduce the amount owed will be used, so tenants may:
- bring up any and all complaints about the premises
- claim the landlord failed in their duty of care, or
- cite unforeseen events that invoke the force majeure clause
Hope for a full recovery, but prepare for negotiations, partial settlements, and installment plans.
Step 4: Take legal action
If negotiations fail and the debt value is high enough, landlords can consider taking legal action.
It’s worth noting that tenants do not have to be evicted to pursue legal action for recovery of tenancy arrears. In fact, it can be used as leverage as a tenant is far less motivated to settle unpaid rent once made an ex-tenant!
That said, here are the two legal options:
Option 1: Civil suit
This is the conventional way a creditor recovers debts through the legal system, where they (through a lawyer) file a claim in court against the tenant to obtain a judgment for the debt.
With a court judgment, they can enforce the debt through several options depending on the debtor’s circumstances.
| Method | Description | When Effective |
| Writ of Seizure and Sale (WSS) | Court seizes and sells debtor’s assets to satisfy the debt | Debtor has tangible assets in Malaysia |
| Garnishee Proceedings | Court redirects funds owed to debtor (e.g., bank accounts) to you | Debtor has bank accounts or receivables |
| Judgment Debtor Summons (JDS) | Court orders debtor to disclose assets/income and pay in full or instalments | To obtain detailed information about a debtor’s financial status. |
| Winding Up Petition | Petition to liquidate a company failing to pay a statutory demand | Debtor is a company owing RM50,000+ with assets |
| Bankruptcy Proceedings | Debtor declared bankrupt; assets managed by insolvency office | Debtor is an individual owing RM100,000+ with assets |
| Writ of Possession | Recover rented property after judgment | Debt relates to tenancy arrears |
A general recommendation is to start with a Judgement Debtor Summons, get an accurate understanding of the tenant’s situation, and pick the best enforcement method from there.
Our specific recommendation is to not take conclusive legal advice from articles and consult a lawyer!
Option 2: Apply for a writ of distress
A writ of distress is a specific remedy for landlords, allowing the seizure and sale of the tenant’s movable property on the premises to recover up to 12 months of unpaid rent. Think of it as a writ of seizure and sale limited to rent arrears and movable property on-site.
Compared to regular civil suits, applications for writs of distress are typically uncontested by tenants, making recovery possibly quicker.
Choosing between civil suit vs writ of distress
If the tenant still occupies the premises, a writ of distress can result in full recovery if:
- no more than 12 months of rental arrears are owed
- the movable property on the premises can likely cover the arrears in full
- there are no other outstanding charges such as damages or unpaid utilities
If any of these conditions aren’t met and a landlord still wants a full recovery, they can consider using a writ of distress to first quickly recover 12 months of rent and then file a separate suit for the remaining amount.
What about Notice of Eviction / Notice to Quit?
A Notice of Eviction / Notice to Quit (NTQ) is a formal legal notice informing the tenant the tenancy is terminated due to breach and they must vacate by a certain date, failing which they will be forcibly evicted with a Writ of Possession.
A Notice of Eviction generally provides a final timeline for a tenant to return vacant possession of a demised premises to the landlord.
It will usually also state that if the tenant continues ‘holding over’ the premises after the expiry of the grace period; double rental shall apply as allowed under Section 28(4)(a) of the Civil Law Act 1956.
Upon the expiry of the grace period; the Landlord will be entitled to proceed to apply to court for an Order for Possession.
The Order for Possession will allow the Landlord (with the help of police or the court bailiff) to use reasonable force to remove a stubborn tenant from the premises; including lawfully barring means of access (changing locks, access cards) and cutting off utility supply (water, electricity, etc).
The timeline from the Notice of Eviction to the obtainment of a Court Order for Possession may span several months; depending on factors such as whether the tenant evades service of cause papers. Landlords who don’t act fast may lose out on valuable rental opportunity costs during this interim period. So, act quickly!
Insolvent or bankrupt tenants
If the tenant is bankrupt or insolvent, landlords can check if there is a personal guarantor who agrees to back up the business’ obligations.
We’ve handled cases where discovering a personal guarantor clause took a debt from unrecoverable to fully recovered.
Otherwise, landlords can file a proof of debt which makes them eligible for any distribution from the company’s remaining assets to satisfy the debt.
Professional debt collection services in Malaysia
Landlords who don’t have the time or simply don’t want to directly deal with delinquent tenants can outsource their debt collection to agencies or law firms.
Both provide debt recovery services, but operate differently:
| Factor | Agencies | Lawyers |
| Typical fee structure | Usually success-based (upfront fee plus percentage payable upon recovery) | Usually on a fixed fees basis; but some lawyers do work on Success Fee structures as well. |
| Regulation | No formal regulation, generally operates in a gray area. | Licensed and tightly regulated by the Malaysian Bar Council |
| Conduct | Varies from agency to agency | All bound by strict conduct rules |
| Recovery methods | Phone calls, emails, site visits and negotiations | Letters of Demand, mediation, arbitration, filing civil suits, and subsequent legal enforcement |
That’s all from us, and we wish landlords a smooth recovery process!
Get in touch for a free debt recovery assessment
Rule & Co is a Malaysian debt recovery law firm with close to a decade of helping creditors recover debts via legal strategies that minimise upfront cost, maximise recovery, and safeguard their reputation. If your reminders have been ignored or you simply don’t want the hassle of chasing payments, get in touch.