A holdover clause is common in leases, both commercial and residential. The holdover clause is designed to protect the interests of the landlord when a tenant does not leave after the termination or expiration of the term of their lease. New tenants (third parties to the original lease) can also benefit from the clause in situations where they cannot occupy a rented space due to the holdover of the original tenant. A holdover clause can also benefit the holdover tenant in providing additional time to decide how to move forward with the expired lease.
Key points to know about holdover clauses:
● When a tenant stays past the end of their lease, holdover clauses can protect the landlord’s interest in their property
● Holdover tenants maintain legal rights under most state laws
● State law varies on the eviction process and notice requirements, especially between commercial and residential tenants
What is a holdover clause?
When a tenant stays past the end of the lease, without renewing or extending the term, the tenant is a “holdover tenant.” In that situation, the existence of a holdover clause in a lease contract helps protect the landlord’s rights, and potentially those of a successor occupant.
What is a holdover tenancy agreement?
A holdover tenancy agreement is the agreement contained within the lease that describes the conditions that will apply should a tenant stay in the space after the end of their lease without renewing. The holdover tenancy agreement will describe any changes in rent, as well as the duration of the holdover tenancy and any other conditions that will apply to the tenancy.
Depending on how the lease is drafted, the holdover clause could reflect the entire holdover tenancy agreement–making the holdover clause and holdover tenancy agreement one in the same. Other times, there could be both a holdover clause in the lease and an entire separate holdover tenancy agreement–though this appears to be less common.
Examples of holdover clauses
Holdover clauses are almost always used in real estate lease contracts, and do not differ substantially from commercial and residential leases.
Commercial lease holdover clause
Example: “If Lessee holds possession of the Premises after the Term of this Lease, Lessee shall become a tenant from month to month under the provisions herein provided, but at a monthly basic rental equal to 150% of the then monthly basic rental for the first month of such holdover … and such tenancy shall continue until terminated by Lessor or Lessee with at least thirty (30) days prior written notice of intent to terminate such tenancy.”
This clause allows either party to terminate the lease with thirty days notice, which means it is essentially a month-to-month tenancy. Additionally, since the landlord does not have a long-term reliable stream of income, the trade-off is that the rental amount is increased.
Residential lease holdover clause
Example: “Resident shall surrender possession of the Premises to Owner upon the effective date of any termination of this Agreement, and in the event Resident fails to do so Resident shall pay Owner rent (at month-to-month rates determined by Owner) for each day of such holdover, plus expenses or damages suffered by Owner and/or any future occupants to whom the Premises shall subsequently be leased.”
This states that the tenant shall have to pay rent at the rate determined by the property owner, on a daily basis, and also explicitly states that the resident is responsible for the damages suffered by the owner and any future residents who cannot move in.
Holdover rent
When specified in a lease’s holdover clause, a landlord may charge the holdover tenant the explicitly mentioned increased rent. Sometimes it is the same as the current rent, but it is usually charged at a higher rate, like 1.5 times the rent. In the commercial lease holdover clause example above, the clause included a holdover rent of 150% of the original lease rent. Such a holdover tenant rent increase provision protects a landlord and incentivizes tenants either to timely vacate or properly renew their lease.
Duration of a holdover tenancy
In a commercial lease, the holdover term is usually stated to be month-to-month (which means about 30 days notice to terminate) or tenancy-at-will (which means it can be terminated at any time). Depending on the lease, either or both parties may have the right to terminate.
In a residential lease, there are often laws that protect the tenant with a minimum amount of notice that must be provided before a lease termination when a tenant is in holdover.
However, as long as a landlord accepts a tenant’s rent payments, the tenant will be allowed to remain.
Holdover eviction notice
The eviction process for a holdover tenant is determined based on state law, and is generally the same process for evicting a tenant that is otherwise in default of the lease. One key difference is that in some states, a landlord is not required to provide a holdover tenant with a notice to quit. This depends on the laws of the state and whether it is a commercial or residential lease. Especially in residential leases, there may be city or county ordinances that require certain types of notice be provided to residential tenants before the eviction process can begin.
Holdover clause by state law
Legalities surrounding holdover clauses may vary slightly state by state. Here is a sampling of a few states to give you a sense.
California
In California, "if the landlord accepts rent from you after the end of your term, you will automatically become a holdover tenant" and "your new tenancy will be a periodic tenancy." [1] Under California law, a “30 Day Notice to Quit” is required to evict a periodic tenant. [2]. This means that for a holdover tenant in California, a landlord must provide at least 30 days notice before starting the eviction process.
Maryland
Maryland law contains several variations governing holdover tenants. A few examples are as follows: A holdover tenant is “liable to the landlord for the actual damages caused by the holding over.” Also, a holdover tenant is entitled to a full calendar month’s notice before they may be evicted. [3]
Texas
In Texas, a holdover tenant is only entitled to three days written notice to vacate. If they do not vacate within three days, the landlord may bring an eviction action. [4].
[1] California Department of Real Estate, California Tenants’ Guide
[2] Superior Court of California, San Bernardino County, Landlord Tenant Action
[3] MD REAL PROP § 8-402.1
[4] Texas State Law Library, Landlord Tenant Law
