How To Turn A Holdover Tenant Into Not A Holdover Tenant

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One of the most viewed Ruminations postings is the one titled: “Why So Much Confusion About Holdover Tenants?” It can be seen by clicking: HERE. Today, we are going to illustrate the concept and, at the same time, demonstrate why there is a difference between understanding the individual words of a document, a law or whatever and understanding what they mean in light of words you have never read. Those “words” are in countless court decisions.

That last sentence needs some explaining. We’ll let the following dialog do the work for us:

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”

“The question is,” said Alice, “whether you can make words mean so many different things.”

“The question is,” said Humpty Dumpty, “which is to be master — that’s all.”

Today, we’ll look at an unpublished August 6, 2014 decision by the Appellate Division of the New Jersey Supreme Court. It is known as: WA Golf Company, LLC v. Armored, Inc. and can be seen by clicking HERE.

Like many sad tales of woe, the facts are complicated. Don’t study those facts too closely. They are only for general background. Here the tenant had a contract to do some construction work and to supply clean fill to a major, major residential project and an adjacent golf course being developed by a single owner. The tenant staged its equipment next to what would become the tenth hole. This arrangement was undocumented and went on for about nine years. During this time, the overall developer sold the golf course where the tenant parked itself.

In 2006, the tenant relocated its staging area to a particular “lot” on the golf course land, further away from the important parts of the course. At the same time, it needed to begin a rock crushing operation for which an environmental license was required. To get this license, it needed a written lease. So, it negotiated one with a six month term. As “rent,” the lease gave the landlord (the golf course owner) the right to require the tenant, at the tenant’s expense, to put eighteen inches of clean fill on that very lot. The lease also had a “Holding Over” provision (which is what attracted Ruminations to this case in the first place). Here it is:

32. Holding Over. If Tenant holds over in possession after the expiration of the term of this Lease, such holding over shall not be deemed to extend the term or renew this Lease, but the tenancy thereafter shall continue as a tenancy at sufferance whereupon Landlord in addition to all other remedies available to it under this Lease or at law shall be entitled to receive as liquidated damages, not as a penalty, an amount equal to [Twelve Thousand Dollars per month], as applied to such holdover period, together with the additional rent required under this Lease. If Tenant holds over for a partial month, then such holding over shall be deemed to be for a full month for the purpose of determining holdover rent pursuant to this Article. In addition to any other liabilities to Landlord accruing from Tenant’s failure to surrender the Property, Tenant shall defend, indemnify and hold Landlord harmless from loss and liability resulting from such failure, including, without limitation, any claims made by any succeeding tenant founded upon such failure.

(Note: The brackets were in the lease.)

Readers will note that despite the number of words in the cited clause, it never defined what it meant for the tenant to “hold over.”

The landlord never “called” for the clean fill. The lease term expired in April of 2007, but the landlord never asked the tenant to leave and never asked for rent payments. The first demand for the holdover rent was made when the landlord filed suit in June of 2011. Pay attention: that’s over four years. The only work done by the tenant for the gold course owner after the lease expired was a sinkhole repair costing $9,000. The tenant was not inactive, however. In the four “holdover” years, the tenant also did $6.5 million in construction work for the contractor building the course’s clubhouse as well as some work for a tournament operator.

It wasn’t until early January of 2011 that the landlord sent the tenant a “notice to vacate.” The tenant didn’t budge. At the beginning of June, the landlord started an eviction action and, more importantly for today’s reminder-lesson, it also sued for approximately $600,000 in back rent.

At this point, Ruminations thinks it would be helpful to give readers a roadmap (of sorts) as to where today’s posting is going. Here it is by way of a take-away. It isn’t always clear whether a tenant has become a “holdover” tenant until well beyond the last day of the expired or terminated lease. What might otherwise be a “holdover” tenancy could be recharacterized, from day one, as a periodic (month-to-month) tenancy if the landlord ignores the situation or is ambivalent as to whether it wants the tenant to stay or not. Landlords cannot sit back and decide later if they want to enforce a “double” rent (or similar) lease provision or holdover statute. Landlords can’t accept the tenancy for a long period of time and then, when they change their minds, reach back and claim the tenant remained in its space without permission. If you wonder how that played out in this case or if you want to see an illustration of what we’ve just written, then here is the “rest of the story,” though not by Paul Harvey.

Although the lower court’s ruling was set aside on appeal, it is still instructive as to “what could have been” had the facts been “right.” Following a non-jury trial, the lower court judge found that the 2006 written lease was an attempt to modify the 1997 “oral” lease. Having characterized the 2006 writing as a modification, the lower court then threw it out because “no additional consideration was furnished.” That meant the court believed that the tenant got nothing from the landlord it didn’t already have and hence whatever promises the tenant made, such as to furnish clean fill or pay holdover rent, were not contractually binding. Basically, you don’t have an enforceable contract where one party gets something for nothing. [That’s not a complete explanation, but that’s the one that would negate the 2006 written lease if, in fact, that lease was actually a lease modification.

Independently and more importantly, the lower court judge found that the tenancy was “at will” rather than “at sufferance.” At tenant “at will” has the right to occupy its premises until either it or its landlord gives notice that the tenancy is over. In most states the minimum notice period is one month. Basically, when a tenant’s right to remain in its premises is characterized as “at will,” it means that it and its landlord effectively have a periodic (usually, month-to-month) lease, though not a written one.

On the other hand, a “holdover” tenancy (also known as a “tenancy at sufferance”) is one that the landlord can end by notice alone and without any waiting period. It is one where the tenant did not have permission from the landlord to remain in the space, did anyway, and its landlord “suffered” the situation.

So, as our readers can see, when the lower court ruled that the tenant’s right to remain on the property was by reason of the “oral” lease and the 2006 lease was actually an ineffective amendment of that oral lease, there was no agreement that liquidated damages of $12,000 a month would be payable.

Many people think that when a tenant remains in place after its lease has expired or been terminated, the tenant automatically becomes a “holdover” tenant. They base that on a simple reading of the lease or of a jurisdiction’s “holdover” statute. But, that’s just not correct. A tenant becomes a “holdover” tenant (or one who is there “at sufferance”) only when the tenant remains in its space without the landlord’s permission. Actual or implied permission from the landlord will make the holdover statute inapplicable.

Now, that’s not the end of our story because the appellate court overruled the lower court, though the outcome wasn’t much changed. Here’s what it thought.

First, it addressed the period of time before the 2006 lease was executed. According to the lower court, the tenant had the right to occupy the property under an “oral” lease. The appellate court rejected the “oral” lease conclusion, but also pointed out that before 2006 there wasn’t a written lease either. For those who think there are only two kinds of leases, oral and written, “head’s up.” Although the appellate court didn’t see any express agreement, oral or written, it did see a possible “implied lease.” Under the right set of facts, this particular tenant’s right to possess the staging area space could have been implied by the action of the parties. [Warning: the appellate court wasn’t finished; it didn’t find the “right” facts, and ultimately decided it wasn’t a lease at all, though it could have been.]

It doesn’t matter if there isn’t an express oral or written agreement “as long as the occupier is on the property with ‘the owner’s permission and with the understanding that rent would be demanded.’” So, what was its rent? “The law will imply a contract to pay rent from the mere fact of occupation, unless the character of the occupancy be such as to negative the existence of a tenancy.” [That’s the way they spoke in 1855 when those words were written in an earlier court’s decision.]

Wait a minute, maybe this was a “license,” not a “lease.” After all you don’t need a leasehold interest to lawfully occupy land. Often, it is difficult to distinguish between a lease and a license. It depends on the intention of the parties and if that isn’t clear, it could depend on what actually happened or is happening “on the ground,” so to speak. Where no rent is stated, there isn’t a clearly defined term, there are limitations on exclusive possession and control of the property by the occupier, and the property owner can tell the occupier to “get out” at any time, you are most likely looking at a license, not a lease.

With that in mind, and especially after noting that before the 2006 lease was executed, the “tenant” had to share the property with other contractors, the appellate court ruled that before the 2006 written lease, the tenant had a license to occupy the property, not a lease to possess the property.

So, was the executed 2006 lease valid? There was an offer and there was acceptance and there was consideration. The lease terms were bargained for. Was there “new” consideration (now that we know the tenant had previously been a licensee)? Well, the landlord provided a piece of land for occupancy and the tenant agreed to provide in-kind services. So, “yes, there was.”

Now the big question and, for those who remember 1,500 words or so ago, what was the tenant’s status after the six month, 2006 lease expired? What was its “rent”? Was it the $12,000 a month as the landlord claimed (asserting that the tenancy was “at sufferance,” a “holdover” tenancy)?

What were the facts as the appellate court saw them?

Simply stated, it held that the parties just ignored the 2006 lease and its provisions after its term expired. The landlord never asked for rent during the ensuing almost four years. It never asked the tenant to leave. It certainly knew the tenant was still there. After all, the tenant did repair work on the golf course during those four years and it supplied services to contractors who were building on the landlord’s property.

So, while it was true that when a lease ends and the tenant should leave the property, when a “landlord consents to a holdover on its premises, then “that consent creates a periodic tenancy.” The rub, for the tenant, is that it has the burden to show the “consent,” and “mere unbroken silence or inaction” by the landlord isn’t enough. On the other hand, the consent “may be either expressed or implied, actual or constructive, by words or some act treating [the occupier] as a tenant.”

Here, the appellate court accepted the lower court’s finding that the landlord, by its inaction for almost four years, “impliedly” consented to the tenant remaining on the property. Hence, this was not a “holdover” tenancy or a “tenancy at sufferance.” The situation converted what could have been a holdover tenancy (a/k/a a “tenancy at sufferance”) into a periodic tenancy (a/k/a a “tenancy at will”).

As readers may have surmised, the tenancy’s status changed when the landlord finally gave notice to the tenant to leave the property. As a tenancy at will, it could be terminated on a month’s notice. So, after the landlord finally sent the termination notice and a month passed without the tenant leaving, it finally became a “holdover” tenant liable for the $12,000 a month liquidated damages thereafter.

Did the lease have a non-waiver provision that should have saved the day for the landlord and allowed it to reach back for the $12,000 the lease said would be payable after the end of the six-month term? Yes. Did that trouble the court? No. As we’ve written several times before, a non-waiver clause can be “waived” if the waiving party demonstrates intent to voluntarily waive a right. So, as confusing as this may seem (and it is the law), a party, by its conduct, can waive the right to enforce a contract provision that says its conduct will not serve as a waiver of its rights.

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Comments

  1. Ira: If the above clause had stated that if the tenant had remained in possession after the expiration “without the landlord’s consent and as such was automatically deemed to be a tenancy-at-suffrance”, would that have been sufficient to address your first point? Or does the Landlord have to do something affirmative (i.e. declaring that tenant’s remaining in possession was without landlord’s consent) after expiration despite the language in the lease?

  2. My reading of the case law is that inaction can speak louder than words. The key word is not “deemed.” It is “consent.” My best guess is that even if a lease says “written consent” and has a non-waiver clause, the level of inaction in the highlighted case would have brought about the same result. That’s the take-away.

  3. Ira: I have seen many leases that say that if the tenant stays after the end of the term, it becomes a month-to-month tenancy. That seems to me like a terrible result for the landlord. After the landlord terminates the month-to-month tenancy, if the tenant stays over, it creates another month-to-month tenancy. And so on ….

  4. In representing a tenant, I usually take the approach, consistent with many landlord lease forms, that in the absence of a statement from the landlord that the holding over is without landlord’s s consent and is therefor “adverse”, the holdover becomes a month-to-month tenancy terminable by either party on 30 days notice. Holding over beyond 30 days after such notice results in a tenancy-at-suffrance. The subject of holdover rent during the month-to-month regime and the tenancy-at-suffrance regime are always negotiated.

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