Renting out homes seems like a laid-back way to get money - if you minus the repercussions from tenants’ suspicious schemes that happen behind closed doors. Following a series of news reports in the past detailing incidents where criminals utilised warehouses, store lots, and even residences to conceal a huge quantity of illegal cigarettes before distributing them in the domestic market, the director-general of the Customs Department, Datuk Seri Abdul Latif Abdul Kadir, cautioned landlords to be alert of any potential criminal activities that are happening inside their properties. What if you, as a landlord, choose to ignore it? You may get dragged in as well.

What? Under what law?

A landlord can be held responsible under the Customs Act, Section 107 and 108 of the Penal Code, as well as Section 135 if they supported unlawful acts such as the storage of illegal cigarettes on their property. They may be held liable under the Customs Act 1967's Section 135 (1)(d) if they allowed their tenants to keep prohibited or uncustomed items. Landlords may also be convicted under the Prevention of Crime Act 1959 and Anti-Money Laundering and Anti-Terrorism Financing Act if their property is used for unlawful gambling operations.

Safety over money

R Paneir Selvam, a senior lecturer at HELP University's Faculty of Business, Economics, and Accounting and Institute of Crime and Criminology, said that in the current economic downturn, landlords are choosing to ignore tenants' backgrounds rather than do a thorough job of tenant screening in order to service on-going bank loans. This is mainly the case if they are offered above the market price or are paid rental fees of 12 or 24 months upfront by the tenants.

Selvam is not alone in this. The Malaysian House Buyers Association (HBA) also has the same advice; to keep an eye on what's going on in the houses they've rented out. According to HBA secretary-general Datuk Chang Kim Loong, landlords should not only care about collecting rent and turn a blind eye to any unlawful activities taking place on their premises. He believes that, although it’s not that easy to connect a landlord to their tenant’s crime, it is still not impossible. As the legal owner of the property, any illegal operation run by a renter can undoubtedly bring serious consequences for the landlord. Plus, with several cases in the past, landlords can potentially get into difficulties as a result of their ignorance or negligence.

Chang also advised landlords to be on the lookout for any warning signs and in no way should a landlord believe that they can get away with illegal operations by claiming ignorance or that they are not personally participating. The law enforcement has made it clear that property owners who rent out their properties for unlawful purposes will also be subject to criminal action. This is not to say that landlords will always be convicted if the tenants are found guilty, but rather, landlords should ensure that some safety provisions are in place to protect themselves.

Punishment and fines $$

When a landlord is aware that a tenant has been using his or her home to store and distribute uncustomed items, the landlord as the property owner is subject to prosecution under the sub-section of the Customs Act, which carries a minimum fine of RM100,000 or a minimum jail sentence of not less than six months and not more than five years, or both. If convicted again, the fine would be RM200,000, and the imprisonment term would be at least six months and no more than seven years, or both, depending on the severity of the second conviction.

Selvam pointed out that when it comes to proving a landlord’s innocence, it is the landlord’s responsibility to substantiate his claims in court that he was not aware of the alleged behaviour of his tenant. “By accepting rent and proving other circumstances in court, he bears a heavy burden as a homeowner. This is a negligible risk borne by the owner,” he added.  That’s a lot of fine and unnecessary work to do for landlords who may not even be aware of their tenant’s ill intention!

Because of this, landlords generally have a duty to check the background of prospective tenants and answer for whether or not their property has been used for unlawful activities. If a tenant is engaging in unlawful activity, the landlord is obligated to make a police complaint and pursue legal action against them. As Selvam pointed out, the court may find landlords responsible for assisting and encouraging the tenants to do criminal acts under Section 107 and 108 of the Penal Code.

What can landlords do to protect themselves?

It’s a tough spot to be in, especially for innocent landlords whose intention is to just rent out their homes. One can only imagine the horror when hearing a knock on the door and seeing a bunch of guys in uniform standing before you. To avoid this situation, make sure to observe these two very important steps before you rent out your homes; Tenant Screening and Tenancy Agreement.

1. While choosing a tenant, do a Tenant Screening

A proper tenant screening is one of the basic steps when renting your homes which, unfortunately, gets overlooked by some landlords due to its tedious process. However, this part plays a major role in trusting your properties to the right person. Landlord should conduct a thorough background check on potential tenants to weed out the problematic ones. Understandably, it's not an easy chore for a landlord to do this all by themselves. But bear in mind that this step can separate the shady tenants from the honest ones, reducing the likelihood of illegal activities occurring in your property.

At Instahome, our tenants are screened thoroughly for our landlords. Their profile is assessed to make sure that they suit your criteria and how responsible they are with money by analyzing their financial habits. Instahome partners with CTOS Data Systems Sdn Bhd (CTOS) to run a credit check on their past, including bankruptcy, legal actions, delinquencies and criminal history. Finding the ideal tenant is our responsibility so that our landlords can protect their properties and themselves.

Understand more on how we process our tenants for you here.

2. Sign a solid Tenancy Agreement

Many landlords overlook the significance of this legal document, considering the time and effort required to draft and execute the lease agreement is sort of a nuisance. However, since there is no specific law that governs the contractual relationship between a landlord and a tenant in Malaysia, the tenancy agreement becomes the controlling document in the event of a dispute. As a result, having a properly defined tenancy agreement in place would be in the best interests of both parties.

There are several items that need to be included in the agreement, but the one relevant to this topic is to define what is the permitted usage of the property. Yes, make that one loud and clear to your future tenants! Although it may seem self-evident that a home would typically be utilised for residential purposes in most tenancy agreements, the authorised use of the property must be specified clearly in your agreement to prevent your property from being misused or hold you accountable for it. A documented tenancy agreement should safeguard not only tenants but also landlords, and the nature of the renter’s tenancy should be disclosed.

You can read more on a tenancy agreement here.

3. During tenancy - how to supervise ongoing illicit activities

It would be difficult as a landlord to physically monitor any suspicious activity behind closed doors. In fact, some tenants might be a little smarter than you think and would behave normally in your presence. Fortunately, there are potential signs a landlord can identify should there be an anomaly during a tenant’s tenancy.

  • High traffic into and out of the property
    Increased number of cars pulling up for a short period of time (especially for landed homes) or unfamiliar visitors dropping by and leaving shortly after.
  • High utility bills
    Growing operations require special lighting and consume a higher amount of electricity, which will increase the utility costs.
  • Eyewitness’ complaints
    Concerns from neighbours regarding the tenant (for example, late-night noise/odd smells/secretive loading and unloading of vehicles) should not be disregarded completely as most of the time, the landlord is not around to witness their activities.

If you see obvious signs of illegal activities going on, you must report the tenant to the authority as soon as possible.

Never skip the most important steps

Being a landlord is often portrayed as being easy. But in reality, that’s not always the case. Especially for landlords who have unknowingly rented out their properties to tenants with criminal intent, being held liable for something you have zero involvement in is unfair. To avoid getting involved in the first place, a landlord should never tolerate questionable tenants or behaviours. Make sure your tenant has a clean record and that your terms and rules, and the tenant’s agreement to it, are communicated and recorded clearly. And what better way to do it than to have us do all these for you. Yes, with Instahome, you will have everything taken care of - from finding to screening tenants to preparing a tenancy agreement for you. Never be alone in your landlord journey!

Let us assist you!