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You Can't Have Your Cake And Eat It Too

by MH Law | June 26, 2024 | Case Spotlight

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Overview


According to the High Court ruling in the case of Tetap Tiara Sdn Bhd v Hatching Education Group Sdn Bhd [2023] 8 AMR 978, it was established that neither an "agreement" nor a "waiver" could legitimize an unlawful contract. As a result, the respondent was unable to seek reimbursement for the rental payments made under section 66 of the Contracts Act 1950, despite both parties deriving benefits from the rentals and the use of the premises.

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Background Facts


The respondent rented two premises from the appellant for a special needs education center for a three-year period. However, the respondent discovered that the renovations carried out by the appellant did not adhere to the approved building plan, which hindered the respondent from acquiring the necessary trade licenses. Consequently, the respondent terminated the agreement, vacated the premises three months later, and requested a declaration of the agreement's nullity along with a refund of 15 months' rent.


In response, the appellant filed a counterclaim for unpaid rent, damages for the loss of rental income for the remaining term, and reinstatement costs. The Sessions Court ruled in favor of the respondent, prompting the appellant to appeal the decision to the High Court.


The key points of contention revolved around specific clauses outlined in the offer letter:


  • Clause 2: No guarantee regarding the suitability of the premise for a special needs education center

  • Clause 12: Premises accepted on an "as is where is" basis.

  • Clause 15: The landlord's right to modify building plans or carry out renovations without being held liable.

  • Clause 19(c): Tenant's obligation to secure necessary approvals and licenses.

  • Clause 19(d): Tenant's right to terminate the agreement if approvals are not obtained within six months.


The appellant contended that the respondent, despite being aware of the deviations in April 2018, continued to utilize the premises until March 2019. On the other hand, the respondent argued that the unauthorized renovations rendered the agreement null and void, justifying their request for a refund.

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High Court Findings


The appeal in the High Court was partially successful, confirming that clauses 2, 12, and 15 could not be used to justify non-compliance with the law. The respondent was within their rights to end the agreement, but could not claim a refund for rental payments made due to estoppel, as seen in Redha Resources Sdn Bhd v Majlis Agama Islam Selangor & Ors [2020] 6 MLJ 541. It was noted by the Court that the respondent continued to use the premises despite being aware of the breaches.


Furthermore, the Court decided that the respondent could not request restitution under section 66 of the Contracts Act 1950, drawing parallels to scenarios outlined in the section where the tenant is obligated to pay for benefits received during their occupancy.


Although the Tenancy Agreement was declared void, it was not considered inherently illegal, with reference made to Liputan Simfoni Sdn Bhd v Pembangunan Orkid Desa Sdn Bhd [2019] 4 MLJ 141, which allowed for the enforcement of a contract despite violations of the Stamp Act 1949 and Real Property Gains Tax 1976.


The appellant's counterclaim was rejected since the respondent had the right to terminate the agreement. Additionally, the appellant was instructed to refund the deposit.

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Key Takeaways


Tenants need to take immediate action upon uncovering violations to prevent being unable to assert their rights. Landlords should be aware that clauses stating "as is where is" may not shield them from the legal repercussions of statutory violations. These principles are likely to be relevant to different types of contracts.


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