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Controlling holdover tenancy

How to handle the tenant that just won't leave. Most shopping center leases are for a fixed term, often between five and 10 years. Unless the tenant is granted specific options in the lease to extend the term after the fixed expiration date, or the parties later on negotiate an extension of the lease or a renewal lease, the parties expect that the tenant will surrender the premises at the end of the fixed term. But what happens when a tenant does not vacate the premises at the expiration of that fixed lease term?

If your lease does not specifically answer this question, you will be bound by the answer the courts, or in some states the legislature, have given. Where no statute expressly governs, the courts have generally held that a tenant who holds over after the end of the term is either a trespasser or a holdover tenant. Which one the tenant is will depend on the actions of the landlord.

In most states, if the landlord takes prompt steps to evict the tenant, then the tenant will be considered a trespasser and will owe the landlord all provable damages (including a fair market rental and sometimes consequential damages like landlord's lost profits). If landlord waits too long to take action to evict the tenant, or if landlord accepts rent (or if landlord does any one of a multitude of other acts that a court could consider implying an intent to treat the tenant as a holdover), then the tenant is automatically a holdover tenant.

The courts and many state legislatures have also set the term of the holdover tenancy. In most states, if the original term was a year or more, the holdover term is automatically one year. If the original term was less than one year, the holdover term is usually for the same time as the original term. All the other provisions of the lease (e.g., rent, repair obligations) remain the same as under the original lease, unless they would clearly not be applicable.

Thus, without really intending to, both landlord and tenant could be bound under the original terms of the lease for an additional year. For this reason, some state legislatures have enacted statutes specifying different results when the lease is silent on the issue.

In some states, a holdover automatically becomes a month-to-month tenancy, requiring 30 days' notice from either party to terminate the tenancy. In others, the term of the holdover tenancy is dictated by the manner in which rent was to be paid under the original lease. For example, if the lease called for annual rent payments, the term of the holdover tenancy would be deemed to be one a year; if the original lease called for monthly payments, the holdover tenancy would automatically be one month.

Instead of subjecting the parties to the whims of court rulings or state statutes, landlords and tenants would be much better served to expressly address the holdover question in their leases. The first issue that should be considered is for what term the holdover tenancy will be.

To avoid an automatic year-long holdover tenancy, most leases make clear that any holdover is without the landlord's consent and creates only a tenancy at sufferance. State law often governs the notice required to end the tenancy at sufferance (commonly between 15 to 30 days). The parties can also negotiate the length of notice required to end a tenancy at sufferance.

Some leases specify the holdover as a month to month tenancy. A month to month tenancy will require either party to give 30 days' notice to terminate the tenancy, which will end the tenancy at the end of the first full month following the notice. So, for example, notice given in mid-February would be effective to end the tenancy on March 31.

Many leases also specify the rent for the holdover tenancy. A landlord will want to provide for anticipated increases in the fair market value of the premises by the end of the term. In many shopping center leases, the total rent and charges are doubled or tripled during the holdover period. The parties sometimes agree to toll the rent increase for a short time after the end of the term (usually 30 days) if the parties are negotiating a renewal or extension of the term.

The holdover provision should also permit the landlord to recover damages arising from the tenant's holdover, in addition to the holdover rent. With such a provision, the landlord could recover for the loss of a new tenant whose new lease for the premises terminated because of landlord's inability to provide possession due to the holdover.

Landlords should also expressly preserve their rights to re-enter the premises and dispossess the tenant in the event of holdover.

Addressing at the beginning of the term the critical issues that could face the parties in the event of holdover will prevent uncertainty and unexpected results at the end of the term.

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