Siti Norma Yaakob JCA:

[1] This appeal concerns a tenancy dispute and in substance the cause of action is founded on the following facts.

[2] The respondent is the owner of a three storey shop house with a penthouse known as No. 15, Jalan 14/20 Petaling Jaya, Selangor ("the demised premises"), which he had let out to the appellant. For the purpose of this judgment, I shall refer to the appellant and the respondent as the tenant and the landlord respectively.

[3] The parties' relationship as landlord and tenant was initially evidenced by a memorandum of understanding, if I may call it that, dated 26 December 1984, wherein the landlord acknowledged:

(1) the receipt of RM6,000 from the tenant, being the deposit for one month rental of the ground and first floors of the demised premises.

(2) that a formal tenancy agreement for a period of two years would be executed between them to take effect from 1 March 1985.

(3) that the tenant had the option to renew the tenancy upon expiry, for five-year terms every five years with a new rental to be adjusted at current market price.

(4) that maintenance of the structural walls, electrical wiring and water connection was to be his sole responsibility.

(5) that the second and third floors of the demised premises would not be rented for any medical or dental practice.

(6) that the air-well of the demised premises between the first and second floors would be closed by 1 March 1985 and this would be his sole responsibility.

(7) that in the event of a sale of the demised premises, the tenant would be given the first option to purchase it at market value.

[4] This memorandum of understanding was superseded by a formal tenancy agreement dated 25 February 1985, ("the first agreement") executed by the parties. Clause 1 sets out the period of the tenancy to be two calendar years beginning from 1 March 1985, at the monthly rental of RM5,500 payable by the 30th day of each month. Other clauses include at clause 4(b) the option to renew the tenancy every five years upon expiry of the two years with the rental adjusted to current market value, the first option to purchase at cl. 4(c) and the landlord's covenant to cover up the existing air-well and matters related to it at cls. 3(e), (f) and (g).

[5] At the time of the first agreement, the tenant also made an unrecorded payment of RM48,000 to the landlord this being the first of two such payments, the consequences of which became a bone of contention between the parties and which I shall deal with later in this judgment.

[6] The tenant, a dentist by training, occupied the first floor of the demised premises which he had turned into a dental clinic and surgery and sub-letted the other floors and the penthouse to a number of sub-tenants.

[7] Relationship between the parties soured soon after the tenant moved into the demised premises. Throughout 1985 there was the dispute over the failure of the landlord to cover the air-well and to effect other renovations to the demised premises. There was evidence to show that the local authorities did not approve the landlord's plans to cover the air-well. Despite this and due to the tenant's insistence, the landlord carried on with the air-well renovation but he had to stop when the sub-tenants complained that the construction works disturbed their quiet enjoyment of the demised premises and affected their businesses. Because renovations could not be done, the rental was orally agreed to be reduced from RM5,500 to RM4,500 per month right from the start of the tenancy. Even with this concession, the tenant withheld payment of rentals for 1986 and this led to the landlord filing distress proceedings against him for arrears of rental. To settle the matter, the parties negotiated to end all their differences and this include negotiating for an extension of the tenancy from two to three years but when the landlord demanded that the rental for the third year be fixed at RM7,500 per month, the tenant was not agr