The Impact of Early Termination of a Retail Tenancy Agreements

Q1. Is the Landlord and/or Tenant allowed to terminate the Retail Tenancy Agreement earlier than its expiry date?

Answer: 

It depends. If the Retail Tenancy Agreement (“RTA”) expressly allows for early termination, then the Landlord and/or Tenant can terminate the RTA earlier. If not, such termination is a premature termination which tantamount to a breach of contract.

Q2. What are the impacts of the early termination by the Tenant?

Answer: 

As commonly expressed in the RTA, the common impact of the early termination by the Tenant is the forfeiture of the Tenant’s security deposit. The security deposit paid by the Tenant under the said RTA will be forfeited in the event the Tenant terminates the RTA early.

In the event the Tenant terminates the RTA earlier than its expiry date, the Landlord may claim from the Tenant the rental of the remaining months of the RTA as a compensation for the losses suffered by the Landlord, subject to the terms of the RTA.

Q3. What does unexpired terms in the RTA means?

Answer: 

The unexpired terms in the RTA usually referred to the unexpired period (remaining months) of the term of the RTA.

The RTA usually contains a standard default clause which provides that in the event the Tenant wishes to terminate the tenancy before the expiration of the term of the RTA, the Tenant shall pay to the Landlord a sum that is equal to the rent for the whole of the unexpired period of the term of the RTA.

In simply, subject to the terms of the RTA, the Tenant has to pay the rent for the said remaining months of the RTA to the Landlord in the event he terminates the RTA earlier than its expiry date. In other words, he still has to pay for the rent as a compensation to the Landlord.

Q4. Can the Landlord claim for the unexpired terms upon the early termination by the Tenant?

Answer: 

Yes. Usually, subject to the terms of the RTA, if the Tenant unilaterally terminates the RTA before the expiry term, the Landlord may claim for damages as a compensation for the losses suffered by the Landlord. As ruled in the case of Berjaya Times Square Sdn Bhd v Twingems Sdn Bhd & Anor, a Landlord can claim the full rental of the remaining months of the RTA if the Landlord can prove the actual amount of losses suffered by him due to the early termination by the Tenant.

Q5. Can the Landlord claim for liquidated ascertained damages from the Tenant?

Answer: 

Yes. The Landlord can claim for liquidated ascertained damages that is provided in the RTA. The Landlord is only entitled to the actual losses that is proven suffered by him due to the non-performance and/or breach of the Tenant under the RTA. The law is clear that damages are not meant to enrich the Landlord, but only to put parties back to the position they would have been in had the contract been performed.

However, if the Tenant believes that the damages claimed by the Landlord is exorbitant and unreasonable, the burden of proof is on the Tenant to prove that the damages sought is unreasonable as decided in the case of Cubic Electronics Sdn Bhd (In Liquidation) v Mars Telecommunications Sdn Bhd.

Q6. What does Section 75 of Contracts Act 1950 provide?

Answer: 

Section 75 of Contracts Act 1950 provides that: –

“When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.”

Section 75 of Contracts Act 1950 is a provision on the liquidated ascertained damages which means that when a contract has been breached and a clause in the said contract stipulated the amount of damages to be paid, then the defaulting party of the contract is entitled to pay a reasonable compensation not exceeding the amount specified in the contract, even though no actual damage or loss have been proven.

Q7. How about early termination by the Landlord?

Answer: 

A unilateral early termination of the RTA by the Landlord would also tantamount to a breach of contract which entitling the Tenant to claim for damages from the Landlord as a compensation for the losses suffered by the Tenant.

Q8. What are the available remedies for the Tenant in the event the Landlord terminates the RTA earlier than its expiry date?

Answer: 

The same principles of damages as explained in Question 5 and Question 6 above would apply, subject to the terms of the RTA.

Tenant can also pursue a legal action against the Landlord to seek the remedy of specific performance to compel the landlord to strictly observe the terms of the RTA and thus allow the Tenant to remain in occupation for the remainder of the full promised term as expressed in the RTA.

THIS FAQS ARE PREPARED AND PUBLISHED BY MESSRS GAN & ZUL, ADVOCATES & SOLICITORS, KUALA LUMPUR.

-GENERAL DISPUTE RESOLUTION AND APPELLATE DIVISION-