What is Stamping of Tenancy Agreements
In Malaysia, stamping of tenancy agreements is a legal requirement under the Stamp Act 1949 ("the Act"). The Act makes it mandatory for all tenancy agreements to be duly stamped prior to execution. Stamping of an agreement means the affixing of a duty stamp and marking it on the agreement with an official die, and payment of the appropriate duty charged under the Act.
Failure to comply with this requirement will render the tenancy agreement "unstamped" and thereby "unstampable" in accordance with the provisions of the Act. For the purpose of registration and enforcement of the tenancy agreement, it must be duly stamped. Without the duty stamp, a tenancy agreement is inadmissible as evidence in courts. In other words, either party is prohibited from relying on the tenancy agreement in court proceedings relating to the tenant’s rights or the landlord’s obligations under the tenancy agreement.
Procedures have been prescribed under the Act in getting the tenancy agreement stamped by the Stamp Office:
The tenant can remedy the default of late stamping within 30 days from the date of execution of the tenancy agreement without extra penalty. The landlord can also remedy the situation by affixing the duty stamp at any time during the tenancy period although penalty fees may apply after the 30-day period as elucidated below.
Penalty for Late Stamping of Tenancy Agreements
(i) Within 30 days lawful penalty (after the expiry of 14 days , additional penalty fee of RM5.00 for each day late stamping up to 30 days from the date of execution of agreement)
(ii) After 30 days but within 3 months 10% of the amount of duty payable plus the lawful penalty (after the expiry of 14 days, additional penalty fee of RM5.00 for each day late stamping up to 90 days from the date of execution of agreement)
(iv) After 3 months but within 6 months 20% of the amount of duty payable plus the lawful penalty (after the expiry of 14 days, additional penalty fee of RM5.00 for each day late stamping up to 180 days from the date of execution of agreement)
(v) After 6 months but within 12 months 50% of the amount of duty payable plus the lawful penalty (after the expiry of 14 days, additional penalty fee of RM5.00 for each day late stamping up to 360 days from the date of execution of agreement)
(iii) After 12 months 100% of the amount of duty payable plus the lawful penalty (after the expiry of 14 days, additional penalty fee of RM5.00 for each day late stamping up to 3600 days from the date of execution of agreement)
Ramifications of Delaying Stamping
In Malaysia, the late stamping of documents carries significant legal and financial implications. The Stamp Act 1949 (SA) is the primary piece of legislation governing the stamping of documents in Malaysia. Under Section 47 of the SA, tenancy agreements like other documents, are required to be stamped within a prescribed period. In cases where the tenancy agreement is not presented for stamping within the requisite time, the lessee or licensee shall, in addition to any penalty, be liable to pay to the Collector the duty with which the agreement should have been charged had it been presented at the time the liability to stamp it first arose. The penalty charge for tenancy agreements under Section 47 (1) of the SA is prescribed under Rule 4(1) of the Stamp Rules 2008 (SR 2008) (P.U. (A) 192/2008) as follows:
Rule 4. Penalty charge
(1) The penalty charge for documents which are required to be made before or on or after the 1st day of September 2008 is as follows:
(a) the amount of penalty charge on the duty chargeable shall be calculated at the rate of ten per centum (10%) of the amount of duty chargeable on the document for each perfection (inclusive of any part of the month);
(b) the penalty charge levied on a lease or agreement to lease of machinery under paragraph (a) and under this rule shall be the penalty charge computed on the duty chargeable on the total premium payable over the entire period of the lease or agreement to lease irrespective of the period of the lease or agreement to lease;
(c) the penalty charge levied on a lease or agreement to lease other than machinery shall be computed in accordance with the appropriate provision of the lease duty table in the Schedule; and
(d) the penalty charge levied on loan agreement shall be computed in accordance with the appropriate provision of the loan duty table in the Schedule.
Plus an additional penalty charge of:
(a) eight per centum (8%) of the duty chargeable on the document for the second or third month;
(b) ten per centum (10%) of the duty chargeable on the document for the fourth to sixth month;
(c) fifteen per centum (15%) of the duty chargeable on the document for the seventh to ninth month;
(d) twenty per centum (20%) of the duty chargeable on the document for the tenth to twilight month.
Late stamping of tenancy agreement may cause serious implications as follows:
i. Late payment of the penalty charge does not exempt the tenant from penalties arising from breach of express or implied covenants in the tenancy agreement.
ii. There is no statutory position in hand that would prevent a landlord or lessor from instituting a legal proceeding to recover the arrears rent or to terminate the tenancy agreement for non-payment of rent.
iii. The landlord may foreclose its right arising from a covenant to distrain by a judicial proceeding, instead of distress without for rent or exercise a right of distress and enter into the premises to seize moveable property.
iv. The failure to stamp the tenancy agreement may expose the tenant to civil claims by third parties (other tenants) in a competition to distrain all available goods.
Calculating Penalties: How Much Will I Need to Pay?
The amount of penalty will depend on the period of delay and is computed by reference to the following formula:
Penalty = (AXBXC)/D
Where A = value of the instrument; B = penalty factor; C = per centum of fine; and D = 365 (days in a year).
The penalty factors for each quarter are as follows:
Odd quarters (1st, 3rd & 5th) – 0.75
Even quarters (2nd, 4th and 6th) – 0.25
The value of the instrument is determined by reference to the market value or rental value, whichever is higher, and in the absence of a market or rental value, the value is to be as ascribed by the Stamp Office.
If an instrument is executed outside Peninsular Malaysia, the time period for late stamping is extended to a period of 30 days.
After a Late Stamping, What to Do?
Should any parties discover that the tenancy agreement between them are stamped late, they are encouraged to take the following actions:-
1. To contact the relevant stamping office to appeal for condonation of late stamping
As prescribed under Section 35 of the Stamp Act 1949 , a Commissioner of Stamp Duties may condone the late stamping of any instrument by way of refunding the penalty charged for any period not exceeding 6 months (i.e. 10% stamp duty penalty). Any applications for condonation must be made in writing with supporting documents to justify the lateness. It is important to note that any application for condonation of late stamping can only be considered if the relevant stamping office i.e. Commissioner of Stamp Duties, Melaka or Penang has no objections for such application.
Nevertheless, it is highly recommended that the parties undertake to amend or vary the tenancy agreement so that the delay in payment of the stamp duty can be avoided in the future.
Preventive Measures
The best strategy for the landlord and tenant is to be mindful of the requirement that Tenancy Agreement must be stamped within 30 days from the date of execution. The penalty is a hefty loss of 4 times that of the amount that is payable as a stamp duty for the late stamping, which can be a significant amount based on the rental amount for long term tenancy. A safeguard that can be useful to ensure that this clause doesn’t cause a problem is to insert standard clause in your Tenancy Agreement stipulating that Tenancy Agreement must be stamped within 30 days of the execution. Penalty clauses can be included to create awareness.
Common Questions
What is stamping?
Stamping refers to the process by which stamp duty is levied on an instrument that is executed, signed or made in Malaysia. It is important to note that stamp duty will only be charged on an instrument if the same is executed in Malaysia. Mode of stamping may be electronic or manual.
Is there a time limit within which a tenancy agreement must be stamped?
Under Malaysian laws, a tenancy agreement should be executed and duly stamped within 30 days of the execution of the tenancy agreement. Failing which, penalty will be imposed on the party within whom the duty is chargeable.
When must you pay stamp duty for tenancy agreements?
If you wish for the tenancy agreement to be effective and legally binding, it is advisable that it must be duly executed and stamped. This is to prevent any future disputes between the parties. If the tenancy agreement is not executed or stamped , the parties may not be able to enforce the terms against each other in court.
What will happen if a tenancy agreement is not stamped?
An unstamped tenancy agreement will not be admissible as evidence in court and cannot be relied upon in judicial proceedings.
What is the penalty for untimely stamping?
If the Stamp Duty is paid within 3 months from the due date (based on the ‘date of execution’), an additional fee of 15% on the amount of duty (which is levied on the difference between the stamp duty that is payable and the stamp duty already paid) will be levied. If the duty is paid after 3 months from the due date, an additional fee of 20% on the amount of duty (which is levied on the difference between the stamp duty that is payable and the stamp duty already paid), will be levied. In addition to the penalty, 2% interest per month shall also be levied on the unpaid amount of duty.