20180403 What is “Expatriate” or “Diplomatic” Clause?

20180403 (Tue)

What is “Expatriate” or “Diplomatic” Clause in a tenancy agreement? This was asked in 2017 Q1 in D11 Real Estate Agency Practice.

The name can give us some clues. It has to be something about foreigner in the country who is renting, right? So, it is a clause in the tenancy agreement to protect the foreigner in case he has to leave the country due to uncertainty in his posting. When a tenancy agreement is inserted a Diplomatic/Expatriate Clause, it means this foreigner tenant can terminate the contract anytime without having to perform the whole tenancy duration.

Some landlords will never agree to this clause, so before you want to rent it out to a foreigner, make sure the agreement does not contain this clause. Simply put, as landlord, you cannot forfeit the security deposit if the tenant does not perform the contract. This clause, although as named as such, does not mean it is racist or discriminating foreigners from locals. In fact, locals can also negotiate to have this clause inserted into the tenancy agreement.

Take for example, you are promoted to Kuala Lumpur as a regional manager. However, you might get a sudden transfer back to home state or other places (overseas) without prior notice. So, you can also negotiate for this contingency to be inserted into the tenancy agreement. Usually, the rental amount will be reviewed for such inclusion.

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When a diplomatic clause appears together with a clause demanding perform of the contract without avenue of early termination, it becomes a contract which needs detail explanation. On one part, there is an allowance to early termination. On the other, it says the deposit will be forfeited if terminating the contract without full performance. In its face value, it seems contradicting.

In such consideration, it would be impossible to follow the contract because having the diplomatic clause will contravene the performance clause. The contract may be voidable, thus whoever who breach the contract first will exercise that part of the contract.

In such case, the tenant who wants to terminate the contract without performance by exercising his rights under the diplomatic clause will exercise this right under this clause. Of course, the landlord will not agree to such easy termination. Thus, the landlord will exercise his right under the Forfeiture Clause. In detail, the diplomatic clause should be written to the effect of obtaining back the deposit money, or else the deposit will surely be forfeited under the Forfeiture Clause.

Usually, when a termination clause is written without mentioning the forfeiture of the deposits, it is not entirely contradicting. On its part, it only states that the tenant can have early termination (thus not performing the contract). However, the landlord cannot stop the termination (as the clause allows for termination) is for the purpose of law that the landlord cannot bring to a Court settlement as it is allowable for termination before end of contract.

On the other hand, the tenant cannot avoid forfeiting the deposits as the Forfeiture Clause indeed stated that it is the right of landlord to forfeit the deposit as long as the contract is not fully performed.


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