Leasing 101: The Truth about Holding Over

December 6, 2018

 

In my nineteen years of experience handling about 700 leases, there has only been one instance in which the holdover provision was triggered. 

 

It remains, however, an important provision to protect a tenant at the end of the lease term. 

 

A holdover provision provides landlord a remedy in the event the tenant remains in the leased premises, or ‘holds over,’ after the end of the lease term.  The holdover provision will provide landlord remedies in the event the tenant does not timely vacate by the end of the term. 

 

Holdover Remedy

Landlords typically will require tenants to pay 200% of the most recent base rent and be liable for ancillary damages.  A landlord also may deem the holdover as a renewal of the term on a month-to-month, or in some cases a year-to-year basis. 

 

A diligent tenant usually can negotiate the holdover rent to be 125-150% of the most recent base rent.  A tenant should aim to keep the holdover provision to the smallest penalty as possible. 

 

An ideal provision would have holdover rent at 125% of base rent and no liability for consequential damages. 

 

Ancillary Damages

If the landlord is adamant about keeping tenant liable for ancillary damages for the holdover, one reasonable compromise to consider is a provision providing that tenant initially is only liable for holdover rent (ideally, at 125%), but in the event landlord has a new tenant ready to occupy the same space and tenant then does not vacate within 30 days of notice from landlord, the tenant then would be liable for actual damages after the 30 days.

 

No Renewal

Further, the holdover should not be considered a renewal of the term or a typically month-to-month tenancy.  A tenant should try to limit the holdover period solely to any period after the term’s expiration during which the tenancy is actually occupying the space. 

 

Once the tenant vacates the space, the holdover period should end.  A diligent landlord may want the holdover period and rent obligation to run the full month-to-month period.

 

Is Landlord Liable for Late Delivery?

While a tenant is reviewing the holdover provision, it is a good idea to compare tenant’s liability for holding over with landlord’s liability for a late delivery. 

 

If there is limited liability to a landlord for delivering late, it should not have a strong argument for a severe holdover provision because it likely is not exposed to much liability for a future tenant. 

 

However, if landlord does have a severe consequence for late delivery, including rent credits or a tenant termination right, the tenant should expect that the landlord will want a strong holdover provision as an effect enforcement mechanism to get the tenant out at the end of the term.

 

A holdover provision might be used rarely in actual day-to-day leasing, but taking the time to review what may happen at the end of the term, which may be 5 or 10 or 15 years from the present, will help to ensure a smooth experience for the entire tenancy.

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