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Is a Tenancy Agreement Really Necessary?

BY Team Loanstreet

Updated 19 Nov 2019

Having a tenancy or rental agreement in place can incur cost and possibly reduce profit margins. What for, you may ask. The rationale to enter into a binding rental agreement is similar to having any other contract: to have clear terms in black and white that will help you avoid possible ambiguity problems in the future. In this article, we will discuss about the importance of having a rental agreement for both parties.

What's covered in this article?

1) Fixed rental rate and duration for tenant

Having a tenancy agreement can prevent the home owner from raising the rental fee indiscriminately within the rental period. The tenant is protected from any rental fluctuation within the duration stated in the agreement.

With no clear agreement about the rental rate and period, owners can increase their rental rates on a whim and force tenants to comply or leave, resulting in you having to hunt for a new place all of a sudden. With a valid tenancy agreement, the tenant is protected within the stipulated parameters of the agreement.

2) Protecting tenant’s deposits

A rental agreement is essential as proof that tenants have already placed a sum of money with the owner as a refundable deposit. Without the agreement, the owner can simply deny that any transaction has taken place in the past. The owner can also refuse to refund the deposit if he or she decides to do so.

In addition, the tenancy agreement also clearly outlines the responsibilities of the owner and tenant during the whole duration of tenancy. If these terms are not met by the owner, the tenants may be forced to suffer the consequences, such as when the owner suddenly decides to shut off all utilities.

3) Higher leverage for owner

One major criteria banks look for when accessing one’s credit score is the applicant’s income. A home owner can submit a valid tenancy agreement to the banks as a proof of additional income source. With this rental income, applicants will have better eligibility and higher chance of loan approval.

P/S: To determine your housing loan eligibility, use this home loan eligibility calculator for more accurate results.

4) Protection for owners

In the case of unforeseen events, the tenancy agreement has clauses that protects home owners. For example, if the home owner wants to recover his/her premise claiming defaulted rental payments by the tenant, he/she can file a simple eviction summons in court using the tenancy agreement as proof. Any dispute between the owner and tenant will be referenced to the tenancy contract

Having a tenancy agreement also grants the right for the owner to forfeit the deposit in the event of any damages to the property. The right for deposit forfeiture also ensures the tenant obeys the tenure duration, for if the tenant moves out all of a sudden without prior notice, the deposit will be revoked.

5) Are there any reasons for not having a tenancy contract?

There are a few reasons for not having a tenancy contract.

If the tenancy period is 3-6 months, a tenancy contract might become somewhat of a hassle to draft. Furthermore, tenants who prefer short term rentals while waiting for their own home renovation might prefer a more flexible duration.

Also, there are some home owners who want to save on stamp duty cost which can add up to a few hundreds. Some simply want to do away with the extra costs and time taken.

To conclude

The reasons for not wanting a tenancy agreement can be varied. The benefits of having one far outweighs the reasons for not having one, so we strongly advice to get one done. While we are on the subject of rent, do check out our article on how owners should consider certain factors before renting out their premises.

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About the Author

Team Loanstreet

Run by a professional human-sized team, get resourceful tips & guides from our very own library of financial articles that can help improve your financial lifestyle & make a well-informed money decision. We strive to provide you with the best service in helping you to get the most out of that DUIT!


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