In Short
- Holding over means a tenant stays in a property after the lease expires, usually moving to a month-to-month arrangement.
- Both parties can end the arrangement with one month’s notice, giving flexibility but also some risk for tenants needing time to relocate.
- Tenants must continue to meet lease obligations during the holding over period, including rent, maintenance, and make-good requirements.
Tips for Businesses
If your lease is ending and you plan to hold over, check the lease terms carefully. Speak with the landlord early to agree on rent and notice periods. Keep in mind that either party can end the arrangement with short notice, so make sure you have a plan if you need to move quickly.
A tenant may occupy a commercial or retail property without a fixed-term lease when the lease has expired and did not contain an option to renew or where the tenant did not elect to renew the lease. We unpack options for both parties when a lease ends, but the tenant remains on the premises with the landlord’s permission.
What is Holding Over?
“Holding over” in a lease context refers to a tenant remaining in the premises after the initial lease term concludes. Commonly found in commercial and retail leases, this situation triggers a transition to a month-to-month arrangement unless otherwise specified in the lease agreement.
Generally, both landlords and tenants have the flexibility to terminate the lease with one month’s notice, allowing for adaptability in the face of changing circumstances. This arrangement benefits tenants seeking short-term flexibility and landlords looking to make adjustments or secure a new tenant promptly.
Why Hold Over?
The lack of an option term may force a tenant to hold over the lease in some circumstances. However, there are various reasons why the tenant may either want or be asked by the landlord to hold over.
1. The Lease Does Not Have An Option Term
If a retail lease or commercial lease does not include an option to renew or the option to exercise the window has expired, a tenant may want to stay on the property on a monthly basis while:
- searching for a new location for the business; or
- negotiating a new fixed-term lease for the same premises.
2. Negotiations For Lease Renewal Have Not Yet Concluded
The lease renewal process can become complicated or delayed when there is no option for renewal available. Negotiations often go beyond the initial lease term, leaving the tenant in a holding over. During this period, the lease will still continue as outlined in the lease agreement until both parties agree on the renewal terms. This temporary extension helps keep the business running while the details of the renewed lease are worked out.
3. No Commitment
If a tenant plans to leave the premises soon and does not want to commit to a new fixed lease term, they might choose to “hold over” instead on a monthly basis. This offers flexibility and is a preferable option when the tenant does not want the obligation of a longer fixed lease term. It is a practical choice when the intention is to vacate the premises shortly.
4. Failure to Meet Obligations on Expiration of Your Lease
In specific situations, a landlord may compel a tenant to hold over the lease due to a breach of the lease terms during the original term, whether it be by failing to make good the premises within the specified timeframe or by the tenant being in breach of the lease and losing their option to renew. The landlord’s ability to enforce this depends on the terms of the lease. In such cases, the landlord may have the option to decline the tenant’s renewal of the option period under the original terms, but the parties could agree to a monthly tenancy instead.
Opting for a monthly arrangement allows the landlord a more straightforward process to terminate the lease if needed. This approach gives the landlord flexibility in managing the situation following a breach, depending on the specific terms outlined in the lease agreement. Otherwise, the holding over period will apply until the make-good works have been completed and all other obligations under the lease have been fulfilled.
5. Default
Many leases include a provision that permits landlords to terminate the lease immediately, particularly in cases of tenant breaches, such as unpaid rent. When such breaches occur, the lease may transition into a monthly tenancy arrangement, if the lease allows. This clause grants landlords the authority to terminate the original lease term and switch to a monthly basis, facilitating a quicker resolution to address the tenant’s violation of lease terms, such as outstanding payments.
Continue reading this article below the formTenant’s Rights and Obligations
Generally, during the holding over period, the tenant must observe the same obligations as under a fixed-term lease, including:
- keeping and maintaining the premises in good repair;
- making all payments (including rent); and
- making good the premises before leaving.
There is no set formula for rent during a holding-over period, and depending on the terms of the lease, the following can apply:
- maintenance of the same rent review regime as during the term,
- no change to the rent;
- a steep rental increase (as an incentive to renew the fixed term or vacate the premises); or
- the increase may be solely at the landlord’s discretion at any time.
Therefore, determining the rental amount for the holding-over period is important to negotiate at the beginning when entering into a lease.
Terminating a Lease During Holding Over
Lease agreements often grant both tenants and landlords the ability to terminate the holding over period by providing notice, typically 30 days (or one month). While this provides flexibility, it has pros and cons for both parties. Tenants can end the lease without complex negotiations with the landlord over surrender terms.
However, the landlord also has the ease of terminating without providing a specific reason, potentially requiring the tenant to find new premises on short notice. A tenant may need to consider whether they can find alternative premises to move to if the landlord terminates their occupation with one month’s notice. This mutual right to terminate during the holding over period balances flexibility with the need for both parties to plan for changes effectively.
A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.
Key Takeaways
Most leases will provide a tenant with an option to hold over the lease and remain on the property on a monthly basis at the end of a fixed term. Under certain circumstances, the landlord can ask the tenant to hold over the premises and continue paying rent (for instance, where the tenant failed to make good the premises). Tenants must continue to observe the obligations under the lease during the holdover period, noting that although the fixed term has expired, the lease is still in effect. Importantly, the landlord must give permission for the tenant to hold over the premises.
If you have any questions about holding over your lease or need assistance negotiating terms to renew, our experienced commercial leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Yes, you can stay if the landlord agrees. This is called “holding over.” Usually, it means you move to a month-to-month lease. You must keep paying rent and meet your original lease obligations. Either you or the landlord can terminate this arrangement with one month’s notice.
Holding over gives flexibility but carries risks. The landlord can increase the rent, limit your renewal options, or end the lease with just one month’s notice. You must also maintain the property, keep paying rent, and complete any make-good obligations when you eventually leave the premises.
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