What happens when a tenant does not vacate a space after the expiration of its lease? Not infrequently, tenants do overstay their lease expiration, sometimes intentionally. For that reason, the holdover clause is an important part of a lease.
The usual holdover clause battle is in the landlord’s first draft that increases the rent by 25% to 300%. After that percentage increase is established, the increase, harsh or not, usually ends when the tenant departs. However, other holdover clauses build in the possibility of an additional year, often with some increase in rent that would never have been agreeable up front in a negotiation, or extend the term for another period equal to the original term, and still with a huge rent increase. Consider the tenant who only needed another week or month; an extension of the term for a year or longer at the landlord’s option will be problematic.
The holdover paragraph may contain a provision where the landlord may give notice of changed lease terms. Upon a holdover, the tenant will be deemed to be bound by the changed provisions, which is usually a rent increase, a term increase, or both.
Landlords do not usually persist in negotiating for holdover clauses that are patently outrageous. What is important to note here is that the burden is on the tenant to raise the issues.
What happens if a tenant holds over, mails in the rent, same amount as before, and the landlord accepts it? Does that waive the lease provision for a 100% rent increase? Does that extend the term, if the lease says a holdover extends the term by another year?
If the tenant had renewal options that were not exercised by timely notice, but it held over and paid the rent that would have been proper for the renewal period, has it exercised the renewal? If the landlord does not want the renewal how does it accept the rent check, which is probably for less than the holdover amount, and still preserve its right to tell the tenant the renewal right was lost?
All of the questions above should be considered and addressed prior to signing a lease. The holdover clause can cause problems (litigation) for landlords and tenants if not reviewed up front. In order to avoid the headache that a holdover provision can cause, understand the boilerplate language and calendar important dates.
To learn more about holdover clauses or any other issues concerning a lease, contact Bernie Kolodner, Practice Leader of Kleinbard LLC’s Real Estate Group at 215.496.7226 or via email at [email protected].