Commercial Tenancy in Malaysia: What are the protections?

We wrote this article for tenants who worry that their landlords will end their tenancy and start a similar business or get a new tenant who competes with it.

The riskiest business models share 3 traits:

• They enjoy high local goodwill.

• They require expensive fit-out.

• Operations that are easy to copy.

Businesses at risk: kopitiam, cafes, F&B, salons, spas, clinics, gyms, tuition centres, convenience stores, accessories shops, printing, auto and light-industrial services.

Why would the landlord terminate and reopen with your concept?

Main reasons why the landlord is incentivised to do this:

• Customers are tied to a location and routine more than the brand, so there is a risk of “same-place, same-offering” confusion taking place.

• Heavy sunk-in costs for capital expenditures, such as plumbing, electricity, brickworks, air conditioning and ventilation systems, and more. The short notice makes relocation slow and costly but gives the landlord a turnkey operation.

• Low intellectual property barriers and standardised supply chains make it easy to copy products and pricing.

• Specialised built-in equipment may be hard to move. Permits and utility upgrades stay with the site and the landlord benefits.

• It is easy to poach your staff or suppliers who are independent from you.

• Allowed by the contract terms to terminate without giving reasons.

Legal framework for commercial tenants in Malaysia (and Sarawak)

For legal protections, commercial tenants broadly rely on the land codes below, their specific contract, and general contract principles to guard against sudden termination.

• National Land Code (NLC)

  The NLC requires any lease exceeding 3 years registered to be enforceable against third parties. This protects tenants’ interests. Registered leases can only be terminated with strict procedural compliance, such as notice and obtaining a court order. If registered, the NLC ensures that commercial tenants have clear, legally enforceable protection against premature lease termination.

• Sarawak Land Code (SLC)

  Like the NLC, under the SLC sublease for more than one year must be registered to be enforceable against third parties. This grants tenants protected interests in the property, making termination or third-party claims more difficult.

• Contracts Act 1950

  Tenancies are contracts. The Contracts Act ensures that express terms like termination rights, notice periods, and break fees are legally binding. Courts will refuse to enforce a landlord’s attempt to terminate a lease outside those express provisions. So it is essential to write a contract that suits your needs.

The focus of this article is on contractual protections and not the NLC or SLC.

Most tenancies in Malaysia are not registered. But if leases, tenancies, or subleases are registered, landlords cannot terminate unless strict conditions in the legislation are met (e.g., non-payment of rent) and after giving notice or securing a court order.

How can tenants protect themselves in Malaysia?

Unlike some countries like the UK with dedicated commercial tenancy legislation which provides security of tenure (the landlord cannot terminate the tenancy except in a limited set of circumstances), Malaysia’s framework relies on negotiated contracts.

It is crucial for commercial tenants in Malaysia to incorporate protections for their business into the agreement before this is signed and deposits are paid. Otherwise, the balance of power tilts towards the landlord and tenants lose the opportunity to negotiate protections to ensure that their rights are protected in the long term.

Tenants can try to incorporate any of these protections depending on their industry and tenancy-specific risks:

1. Ask for flexible termination clauses that protect your investment

   You should be allowed to end the lease at any time after a minimum lock-in period and without needing to give a reason. The landlord, however, should only be allowed to end the tenancy if you’ve clearly breached the agreement—like not paying rent. Even then, they must give you 30 to 60 days’ notice and a chance to fix the issue before the lease is terminated.

2. Protect your business with non-compete and exclusive use clauses

   Ask for a clause that stops the landlord from renting the space to a competitor or running a similar business themselves—both during your lease and for a set time after it ends. Also include a clause that gives you the exclusive right to run your type of business from that property, so no one else (including the landlord) can offer similar services there during and for a time after your tenancy.

3. Ask for a renewal or first refusal clause to protect your future options

   This means you can extend your lease—say, for another 3 years on the same terms once the initial term ends. If the landlord decides to rent the property to someone else after your lease ends, you should have the right to match any genuine offer they receive and take over the new lease instead.

4. Protect the goodwill and relationships you’ve built

   The landlord agrees that you've invested time and effort into building trust with your customers, staff, suppliers, and others connected to your business. They promise not to approach or try to take any of these people for a competing business—for a set period after your lease ends.

5. Add a clause for pre-agreed compensation if the landlord breaks the deal

   If the landlord fails to meet any of their obligations, you should be entitled to claim a fixed amount of compensation. This amount is based on a formula agreed in advance and covers things like sunken fit-out costs, lost business, moving costs, damage to your reputation, and loss of goodwill.

   
   

Make sure the right people are negotiating for you

In most property deals—especially commercial leases—you’ll be dealing with landlords, property agents, and lawyers. If the agent works for the landlord, their job is to get the best deal for the landlord, not for you. They may want to close the deal quickly to earn their commission, but they won’t push hard for your interests.

Another common mistake is not hiring your own independent lawyer early. Landlords or agents often suggest lawyers they know, or tenants try to save money by using a “mutual solicitor” to explain the terms and help sign the contract. But these lawyers may already be paid from your side and still not truly represent you. If they regularly work with the landlord, they’re unlikely to negotiate strongly on your behalf.

The cost of a lawyer is small compared to what you’ll spend setting up your business. And having someone who’s fully on your side can save you far more in the long term.

This sounds great in theory, but I cannot negotiate with this landlord

Nevertheless, if your landlord refuses to grant any protective clauses, you’re left with two choices: walk away or go in with your eyes wide open and mitigate the fallout.

• Treat the deal as a high-risk. If you can’t fix it now, you definitely won’t be able to do it later. Try to reduce your exposure and agree to a short lease with clear renewals, modest break-fee and negotiating a ceiling for liability.

• See if you can take business interruption or legal-expenses insurance covering eviction or competitive loss.

• Build contingencies into your fit-out budget and timeline. So if the landlord does intend to terminate, you have several months to arrange for this.

If none of these options are workable, walk away. A landlord unwilling to negotiate fundamental and reasonable protections is likely to penny pinch for any renovations or evict you to run a rival business. You’re better off investing your time and capital where you at least have a fighting chance of enforceable protections.