Avoiding Rental Disputes: Understanding Rights and Responsibilities of Landlords and Tenants

In the rental market, disputes often arise between landlords and tenants due to differing understandings of their rights and obligations. Knowing how to prevent rental disputes and protect one's rights when issues arise is essential for both landlords and tenants. This article focuses on residential leasing to help both parties understand their respective rights and responsibilities.

Important Considerations When Viewing a Rental Property

Viewing a rental property is an essential step for tenants to assess the condition of the unit. Tenants should allocate sufficient time to visit the property in person, rather than relying solely on online listings, advertisements, or virtual tours.

When inspecting a rental property, tenants should check for issues such as water leaks, illegal structures, malfunctioning appliances, the surrounding environment, escape routes, and neighborhood management conditions. Additionally, tenants should verify that the landlord holds a legitimate property ownership certificate to avoid leasing a disputed property.

However, recently, fraudulent groups and unethical landlords have demanded deposits, reservation fees, or down payments before allowing tenants to view the property. These scammers disappear after receiving payment, blocking tenants on communication platforms and refusing to answer calls [1].

Rental Deposits: Only Pay When Committed to Renting

After viewing a property, some landlords or agents may require a deposit to secure the rental unit. However, if a tenant is still undecided, they should avoid making this payment. According to Articles 248 and 249 of the Civil Code, providing a deposit implies that the lease agreement is presumed to be established. If the tenant later backs out, the landlord has the right to forfeit the deposit. Therefore, tenants should only pay a deposit if they are sure about renting the property and must request a receipt from the landlord or agent for documentation.

Lease Agreement: Clearly Defining Rights and Obligations

The most crucial step in renting a property is signing a lease agreement. Although lease agreements do not legally require a written form under Taiwanese law, a written contract ensures clear terms and prevents disputes arising from verbal agreements.

Traditional lease agreements often favor landlords, incorporating clauses disadvantageous to tenants. To balance the rights of both parties, the Ministry of the Interior has regulated standard residential lease agreements under the Residential Lease Market Development and Management Act ("Rental Act"). These agreements must include provisions on lease duration, security deposits, rent, repair responsibilities, lease termination, and other critical matters.

Furthermore, the Ministry of the Interior provides a standard residential lease agreement template that incorporates mandatory clauses to help both parties draft a legally compliant contract and reduce dispute risks [2].

Security Deposit Refund and Restoration Disputes

According to common practice, landlords require tenants to pay a security deposit to ensure lease fulfillment. Under Article 7 of the Rental Act, the security deposit cannot exceed two months’ rent. The landlord must return the deposit or deduct outstanding payments once the lease ends and the tenant vacates the premises.

However, many tenants face difficulties in recovering their deposits when moving out. To prevent disputes, tenants should document the property’s condition before moving in and during the final inspection, keep rent payment records, and retain communications with the landlord as evidence.

Under Article 432 of the Civil Code, tenants must take care of the rental property as a "good administrator." If damage occurs due to negligence, the tenant is liable for compensation. At the end of the lease, both parties should inspect the property together to determine whether restoration is required. Some landlords may demand repainting, furniture repairs, or cleaning fees, leading to deposit disputes. To avoid these issues, tenants should inspect the property thoroughly at the start of the lease, report necessary repairs promptly, and retain records of the original property condition.

It is worth noting that "restoration" means returning the rental unit to a reasonable condition considering depreciation and natural wear and tear, rather than restoring it to its original state. Since buildings and furnishings naturally degrade over time, landlords cannot demand an unrealistic level of restoration [3].

Early Termination of Lease and Breach of Contract

If a tenant finds the rental environment unsuitable due to excessive noise, neighbor disturbances, illness, family matters, or job relocation, they may need to terminate the lease early. The possibility of early termination and associated penalties depend on whether the lease includes a termination clause.

Statutory Termination vs. Termination at Will

Statutory termination occurs when statutory grounds arise during the lease period, allowing either party to terminate the lease under the law. Since rental contracts are meant to provide stability, legal termination conditions are typically strict. If a tenant anticipates needing to move out early, they should negotiate a voluntary termination clause in advance.

1. Tenant's Right to Statutory Termination: A tenant may terminate the lease early without penalty under the following conditions, provided they notify the landlord at least 30 days in advance:

• A medical condition or accident requires long-term treatment (a hospital-issued certificate stating a need for at least six months of treatment is required).

• The rental unit is unsuitable for habitation and requires repairs that the landlord fails to complete within a reasonable time after notice.

• Part of the rental unit is destroyed for reasons beyond the tenant’s control, making it uninhabitable.

• A third party claims rights over the rental unit, preventing the tenant from residing there.

• The rental unit has defects that endanger the tenant’s safety or health (unless the tenant was aware of the issue when signing the lease or waived their right to terminate).

2. Landlord's Right to Statutory Termination: A landlord may terminate the lease early without penalty under the following conditions, provided they notify the tenant in advance:

• The landlord needs to reclaim the property for redevelopment (requires a demolition permit and three months’ notice).

• The tenant fails to pay rent for two consecutive months despite a payment demand.

• The tenant owes management fees or other charges equal to two months’ rent despite a payment demand.

• The tenant changes the property’s use without permission and continues despite warnings.

• The tenant stores hazardous materials despite warnings.

• The tenant sublets or transfers the lease without permission.

• The tenant damages the property or fixtures and refuses to repair them.

• The tenant makes unauthorized renovations despite warnings.

• The tenant carries out renovations that violate regulations or compromise building safety.

Termination at Will: Under contract law principles, both parties "may" agree on termination conditions. The Ministry of the Interior’s standard lease template includes a clause allowing either party to terminate the lease with prior notice for at least one month, subject to a penalty capped at one month’s rent. If this clause is not checked by both parties, the lease cannot be terminated early unless a statutory termination ground exists.

Breach of Contract Penalty: In case of any unlawful termination, the contract remains in effect until its expiration date. The non-breaching party may also claim damages and a penalty. However, if the agreed-upon penalty is excessively high, courts may reduce it under Article 252 of the Civil Code. For example, courts have ruled that penalty clauses imposing five times the monthly rent are excessive and should be reduced [4].

Conclusion

The Ministry of the Interior’s standard lease template allows tenants to select an option for early termination. Tenants are advised to choose this option to avoid being trapped in an unfavorable lease. Both landlords and tenants should carefully manage lease agreements to minimize disputes. Before signing a lease, all terms should be thoroughly reviewed, and relevant documentation should be retained as evidence in case of disputes. By using legally compliant contracts and proper documentation, both parties can enjoy a smooth rental experience.

References

[1] Tsuei Mama Foundation, "Deposit Required Before Viewing? Online Rental Scams," August 27, 2021.

[2] Ministry of the Interior Standard Residential Lease Agreement, [website link].

[3] Shilin District Court Civil Judgment No. 1115 (2017).

[4] Taipei District Court Civil Judgment No. 16174 (2022).