Why So Much Confusion About Holdover Tenants?

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There really is such a thing as a “holdover” tenancy, but our experience has taught us that not a lot of us know what it is. So, today, we’ll either be clearing this area up or adding to the confusion. We’re sure our loyal followers will let us know either way.

Last week, Ruminations overstayed its welcome with a very lengthy piece about landlord lien waivers. If you haven’t finished digesting it, press on because it was very, very well received. This week, our goal is to get in and out, hoping to average, over the two weeks, a reasonable size blog posting.

To know what characterizes a holdover tenancy, you’ve got to know what it isn’t. It’s not a “Term of Years” (“Tenancy for Years”); it’s not a “Periodic Tenancy”; and, especially, it is not a “Tenancy at Sufferance.”

When you hear or see “Term of Years,” focus on the word “Term,” not on the word “Years” because, to qualify as one, it just needs to have a fixed term. It needs a starting date and an ending date. Basically, it’s the kind of lease we are all accustomed to seeing. The starting date can be explicitly stated or can be implied based on the date of execution or delivery. The ending date can be a fixed date or can be “X” days, months or years after the starting date. One way or the other, you will know when the term begins and when it ends. The end of the lease term happens without any need for one party to give the other any notice and without any need for something to fall out of the sky. It’s over when it’s over (Ain’t it baby, Ain’t it. Rips ya like a dagger, Can it baby, Can it. Wish we could do it over. Damn it baby, Damn it. We had it in the air, we just …) [Cowboy lyrics by Eric Church]. What happens if a tenant overstays its welcome depends on what the lease says and the particular facts in play. For today, to keep it short, we’re going to assume that readers of Ruminations are dealing with “overstaying” in their written leases.

In contrast, a “Periodic Tenancy” ain’t “over when it’s over” because a “Periodic Tenancy” has no defined ending date, the “term” just keeps rolling over and over. Think month-to-month or year-to year. Without going over the detailed rules, suffice it to say that if neither landlord nor tenant gives the other a sufficient notice (with the time requirements for such varying from jurisdiction to jurisdiction), the tenancy repeats week by week, month by month or year by year, depending on what its initial periodicity might have been. The periodicity might be stated in the lease; otherwise, it generally matches the rent interval – e.g., monthly rent means a month-to-month tenancy. That’s not a complete statement because what appears to be a monthly rent might actually be an annual rent payable, as a privilege, in monthly installments. A Periodic Tenancy commonly follows the end of a Term of Years. To put an end to a periodic tenancy, one party must give the other notice. The length of notice generally matches the “period,” e.g., a month’s notice for a month-to-month lease. Often, a state’s law will set six months as the notice period for a year-to-year lease. And, the measuring date for notices is almost always based as if each period starts on the first day of a month. That’s often misunderstood with the result being that a lot of defective “one month” notices are sent. For example, termination notices for month-to-month leases almost always need to be sent a “calendar month” in advance. That means a notice sent on November 15 would be effective on December 31, not December 15. Worse than that, some courts will “toss out” an entire notice sent on November 15 if it states that the month-to-month tenancy is terminated as of “December 15,” making a whole new notice mandatory. The lesson is that you have to know “how it works” in the jurisdiction where the property is located.

“Periodic Tenancies” are not common ways to start a landlord-tenant relationship. Nonetheless, the rules for them are important because many leases for a fixed term (a “Term for Years”) are written such that they will continue as month-to-month arrangements after the stated term has ended, with all of the other lease’s provisions remaining intact. Keep that in mind as we crawl toward our discussion of the true “holdover” tenancy.

Next, we get to the “Tenancy at Will.” Although this is mainly relegated to non-commercial situations – social situations such as “stay as long as you like,” commercial arrangements of this sort do exist. At common law, these could be ended at the “will” of the landlord or tenant. Today, for the rare commercial Tenancy at Will, statutes commonly set forth a one (calendar) month termination notice requirement. A Tenancy at Will is not a “holdover” tenancy, though from reading a lot of leases, it seems that many parties think it is.

That leaves us with the “Tenancy at Sufferance.” Professor Bernard Vail at Lewis & Clark offered us the following explanation, for which we are grateful. “The common-law definition of a “Tenancy at Sufferance”  was the tenancy that existed after a tenant held over, and before the landlord made up his mind to treat the holdover as a trespasser or as a tenant for a new term (in many states a periodic tenant rather than a new term).  This definition still holds true in many states.”

A Tenancy at Sufferance is a “wrongful” tenancy. Yes, if a tenant overstays its welcome (meaning it stays in possession after one of the previous three tenancies ends), it is a trespasser – it shouldn’t be there; it is wrongfully “holding over.” In our trade, the leasing trade, this is what we (should) mean when we speak of a “holdover” tenancy. Basically, it is the landlord’s choice or the terms of the lease that determine whether you have a “Tenancy at Sufferance.” If the lease is silent, the landlord can “permit” its tenant to stay in possession, thereby creating a Periodic Tenancy, or it can deny its (now former) tenant the right to lawfully remain in possession. If the lease sets forth different “rules,” the lease “trumps” the landlord’s free will choice.

Here is where the text of a lease is critical. If a lease says that if the tenant hangs on after the term, the tenant becomes a month-to-month tenant (a “Periodic Tenancy”), then the tenant isn’t a “holdover” tenant. Similarly, if a lease says that staying beyond the term creates a Tenancy at Will, the tenant isn’t a “holdover” tenant. That’s because, in each case, the tenant remains at the premises with the permission of the landlord and has the right to be there. And, that “permission” remains in force until one party gives the other proper notice and the notice time has run. Go read your lease form. What does it say? If your lease form provides for a Tenancy at Will or a Periodic Tenancy, then the lease’s provisions continue in force and the rent is whatever your lease says it is.

What makes a “holdover” tenancy special? Basically, because it is wrongful. That means that, as a trespass, a landlord may be entitled to tort damages. For a refresher on “damages,” click HERE. Holdover tenancies are so common that many states provide for a statutory “rent,” often double the last rent or double the “fair market rent.” Some states require that a landlord first make a demand for possession, but that’s not a universal rule. Court decisions teach that trivial retention of possession (like leaving some easily movable or removable furniture behind) does not create a Tenancy at Sufferance. A tenant forced to remain in possession, such as by reason of a broken elevator or a utility blackout, is generally not treated by courts as a “holdover” tenant under “holdover” statutes.

We’d be remiss if we bailed out for today without telling readers that parties can vary a statutory “double” rent remedy by providing otherwise in their lease, not only by reducing the “holdover” rent, but also by going “bigger” than double. In the “less than double” class, figures like 125% or 150% are quite common (when negotiated), as are step approaches – 110% for the first 60 days, 150% thereafter, being examples of such. In the “go even deeper” approach, we’ve seen aNew   Jerseycourt approve an agreed-upon “tripling.” Logically, there must be some limit. Look to your state’s court cases. Also, it isn’t uncommon to state that the holdover rent is to be paid for an entire month, even if the holdover doesn’t last that long. There may be some case law as to whether that is an unenforceable penalty or as to whether you’ve created a new tenancy, but we haven’t seen any, nor have we done any research. Perhaps one of our readers has done so and is willing to “share” by posting her or his comment.

There’s a practical side to what has preceded this point. It is that landlords and tenants need to figure out just how they want to handle “what happens when the scheduled lease term is over.” If there is no bargaining power at the table for one party or the other, then it will be a Hobson’s choice. [“Take it or leave it – you remember our October 14 posting?] If there is bargaining power all around, then the two sides can duke it out when writing the lease. Perhaps, the lease term should be extended on a month-to-month basis unless one party notifies the other at least six months before the end of the stated term that the term will not be extended. After all, without a notice period, once one party has affirmatively told the other that “this is really the end,” what is really happening is that the landlord or the tenant, as the case may be, is jockeying for a negotiating advantage.

What do we mean? Well, in our experience (and from reading a lot of cases), a common scenario goes like this. (1) The end is near. (2) The parties begin discussing a lease extension, say for 5 or 10 years. (3) The lease term ends. (4) The parties are still discussing a lease extension. (5) The landlord gets impatient. (6) The landlord threatens to evict its tenant. (7) The tenant leaves. (8) The landlord claims double “holdover” rent. (9) The landlord loses because it really didn’t know that permissive possession by a tenant isn’t a trespass; isn’t a “holdover.” (10) Both parties are unhappy.

Maybe the “tale of woes” just related suggests that sophisticated parties should negotiate for a three to six month notice period so that the tenant can leave graciously and its landlord will have time to start looking for the next tenant.

The subject of “damages” for causing loss of the “next” tenant is beyond the scope we set out for today’s posting. So, we’ll stop here.

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Comments

  1. Moshe Friedman says:

    Great post Ira.
    Some questions that come to mind (1) if your lease form remains silent, isn’t there a greater risk that a landlord who mindlessly cashes a rent check creates a periodic tenancy, which, as you say, might need 6 months notice to terminate? (2) if the holdover tenant is the equivalent of a trespasser, then why is the compensation that the holdover tenant pays called “holdover rent”. Should it really be called “holdover use and occupancy”? (3) Have you seen any cases address the issue of treating the holdover tenant as a trespasser on the one hand, but obligating him to observe the terms of his expired lease during his trespass on the other hand?

  2. In partial response to Moshe’s comment, I would point out:

    46:8-10. Tenant holding over; tenancy from month to month
    Whenever a tenant whose original term of leasing shall be for a period of one month or longer shall hold over or remain in possession of the demised premises beyond the term of the letting, the tenancy created by or resulting from acceptance of rent by the landlord shall be a tenancy from month to month in the absence of any agreement to the contrary.

  3. A New Jersey landlord has long had the right to recover double rent from a holdover tenant pursuant to NJSA 2A:42-6. A September 2011 iteration of the NJ Law Revision Commission report on Landlord Tenant Law proposed, however, to eliminate statutory double rent as a remedy for a holdover tenant’s failure to vacate. A residential landlord could only recover actual damages, while a non-residential landlord could seek actual damages or such other damages as may be provided in the lease. I don’t know what the current status of that report is and in my opinion well enough should be left alone. If the proposal were to be adopted, however, and the statutory double rent were to be repealed, it would appear that a commercial landlord who wants greater than actual damages for a hold over should make sure that the lease states specifically what the quantum of damages will be.

    • This ties into the “election” a landlord gets to make once its tenant stays beyond the end of the lease term. It can treat the post-term period as a Periodic Tenancy (in New Jersey, as a month-to-month tenancy) by accepting rent or giving some other affirmation of “permission,” or it can treat the tenant as “unwanted,” and thus a holding-over trespasser.

  4. Bernard Vail says:

    The common-law definition of a “tenancy at sufferance” was the tenancy that existed after a tenant held over, and before the landlord made up his mind to treat the holdover as a trespasser or as a tenant for a new term (in many states a periodic tenant rather than a new term). This definition still holds true in many states.

  5. joan tole says:

    What about when a tenant is evicted or terminated and leaves behind a person who refuses to leave?

  6. If the landlord accepts normal payment during hold over with no notice of the 2 times the rent charge. Never sends a notice of any late charges during 6 months of hold over or that the 2 times rent is due every month. Can he try and recoup the hold over rent without any notice that a tenant was in hold over. At the end of a lease who is responsible to present a new contract? Is the landlord required to notify tenant lease is up and after X date they will be in hold over status?

  7. regarding holdover escalations – I have an owner that is insistent that 150% of the rent means its the rent at 100% + 50% – so if the rent was $1000 the holdover would equal + $1500 for the 150% holdover for a total of $2500 is that right?

  8. Jeremy J. Deeken says:

    I have dealt with leases that were written in a way that required landlord to sue to collect holdover rent (at a higher statutory rate). By the terms of the lease, any acceptance of rent was to be construed as consent, converted a holdover (tenancy at sufferance) to a periodic tenancy – with its resulting lower rent rate.

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