A lease holdover occurs when a tenant retains occupancy of the premises through the expiration of the lease. Typically, from this point, the tenant rents the space on a month-to-month basis. While there is the added benefit of flexibility for the tenant, “holding over” a space is rarely an ideal situation. Consider how such a situation arises, and what a it means for your bottom line:
Critical Date Management
A tenant most often finds his or herself in a holdover as a result of poor critical date management. Either the lease expiration date came up faster than the tenant realized, leaving little time to research alternatives and/or renegotiate, or a relocation project has taken longer than what has been prepared for, leaving the tenant holding the bag. While the latter may not be any fault of the tenant’s, it is prudent to build into the project timeline, a buffer to hedge against any complications.
Uncertainty
If you are in a holdover situation, you would be wise to secure a location for more than just the next 30 days. Your landlord has the right to lease your space out to a new tenant, as long as you are provided 30 days notice. When in this type of position, tenants find themselves in a scramble to find a new space, putting them in a difficult negotiating position. This is why one of our keys to saving big on your next lease is to keep time on your side. Critical date management can be as simple as regularly checking the calendar, so long as timely action is taken to minimize future uncertainty.
Excessive Rental Rates
It is not uncommon for landlords to install steep rent escalations at the end of a lease – even so much as double the rent of the last month paid or the greatest amount paid in any given month of your lease term. While it may seem egregious up front, landlords do this for good reason. They don’t know if or when they will be able occupy a vacated space, should a month-to-month tenant decide to up and leave. This is especially the case for larger tenants as it almost always takes more than a month or two to get a new tenant in and paying rent. Those particular escalators are set, not to cover inflation, but to mitigate the risk of vacancy. A good tenant rep can negotiate such escalations down, or at least build in more gradual increases, but ultimately your going to pay a lot more if your are holding over your site for an extended period of time.
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