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This article provides a quick overview of lease and tenancy transactions in Malaysia, focusing on businesses intending to enter into a commercial lease.
Commercial Properties
Malaysia has a wide variety of properties available for commercial use. Examples of commercial properties in Malaysia include shopping malls, shop lots, retail outlets, office buildings, factories, warehouses, kiosks, event spaces, industrial parks, and vacant land.
Businesses can operate out of commercial properties without being the owner of the property. Tenancies and leases are common types of real estate transactions that enable businesses to occupy and operate from physical property.
Lease or Tenancy ? Difference between lease and tenancy in Malaysia
Leases and tenancies are contractual agreements governing the use and occupation of property in Malaysia.
In Malaysia, these words have separate and distinct technical meanings. One key distinction between these 2 concepts is the duration of the arrangement.
Typically, the duration of a lease is for more than three years and can go up to a maximum of 99 years. With the consent of the landowner, leases can also be registered against the land.
A tenancy refers to the occupation of property for three years or shorter and is exempt from registration.
While it is very common to hear the terms “tenancy” or “lease” used interchangeably, once parties are ready to progress discussions to formalizing commitments, the correct terminology will be used in the transaction documentation to describe the contractual arrangement (e.g., a tenancy agreement or a lease agreement).
Practical considerations
As there is a wide range of properties available for commercial use, tenants or lessees should carry out a feasibility study to identify the types of properties that suit their business needs before committing to a specific property.
Once a shortlist is made, due diligence helps confirm that the property meets operational requirements and complies with regulatory standards.
At this stage, engaging professional advisors can streamline the process and highlight issues early. The findings from due diligence can then be built into the transaction documents, shaping approvals, commercial terms, and conditions before the agreement is finalized.
If a manufacturing facility is to be built on the property, zoning requirements and express conditions should be identified early.
Where the prospective lessee is a foreign company under the National Land Code 2020, it is prudent to check with the land registry on the criteria for leases, the process for obtaining State Authority approval, and the fees payable. Engaging legal counsel at this stage helps coordinate the project and manage compliance. Alongside the definitive agreement, supporting documents can be prepared in parallel to ensure readiness for signing. Funding arrangements and internal approvals should also be aligned in advance to avoid delays.
Making a Commitment – Transaction Documents
After all shortlisted properties have been considered and the selection process is finalized, it is time to take the next step with the property owner/landlord to discuss and explore key commercial terms and to secure the commitment of the respective parties.
Once there is consensus on key commercial terms, a letter of offer will be issued for signing. Upon signing the letter of offer, at a minimum, an earnest deposit is to be paid to secure the commitment over the property.
The definitive agreement is expected to be signed within the grace period specified in the letter of offer. As highlighted earlier, at this stage, the definitive agreement will be a tenancy agreement or a lease agreement, depending on the nature of the arrangement.
Transaction Documents; Terms and Conditions
The National Land Code 2020 specifies certain minimum terms which are implied in lease agreements and tenancy agreements; however, for the most part, the terms are freely negotiable.
Examples of terms commonly addressed in tenancy and lease agreements are terms relating to:
- duration;
- security deposits;
- rental rates;
- subletting;
- termination; and
- indemnities.
The outcome of negotiations depends on several factors, including the type of property, the business activity to be carried out, the parties involved, and the project timeline—especially if construction or major renovations are required before operations can begin.
Making it all formal
Once all terms and conditions are agreed, the lessee or tenant signs the definitive agreement along with supporting documents and pays the required deposits (such as security and utilities, if not already paid). Thereafter, the documents must be stamped, filed, or submitted, and the lessee or tenant can move on to the next phase of the transaction—whether that involves handover, fitting‑out, construction planning, regulatory approvals, or renovation work.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
