A tenant may occupy a commercial or retail property without a fixed term lease when the lease has expired and didn’t contain an option to renew. 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’ refers to when the tenant remains on the premises after the initial lease term has expired. Most commercial and retail leases contain a clause setting out what happens next. Generally, the tenancy will convert to a monthly tenancy where either the landlord or the tenant can end the lease with one month’s notice.
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 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 process for lease renewal is not always straightforward. Negotiations often drag on well past the expiration of an initial term where there is no option. In this case, the tenant will hold over the lease on a monthly basis (or on the period specified in the lease) until parties agree and sign on the renewal terms.
3. No Commitment
A tenant may decide that they don’t want to renew the term because they intend to leave the premises shortly. In this case, holding over may be a preferable alternative to a fixed lease term.
4. Failure to Meet Obligations on Expiration of Your Lease
In certain circumstances, the landlord may force the tenant to hold over the lease such a breach of the lease during the term. Although this depends on the terms of the lease, the landlord can then refuse an option but agree to a monthly tenancy which the landlord can more easily terminate.
It’s not uncommon for a lease to contain a term that allows the landlord to end the term immediately. Such terms are used where the tenant breaches the lease (e.g. outstanding payments) and the lease reverts to a monthly tenancy.
Tenant’s Rights and Obligations
Generally, during the hold 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 not set formula for rent during a hold 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.
It’s important to note that holding over is usually always subject to the landlord’s consent. If the landlord objects to a tenant staying on the premises after the lease expires, the tenant must leave.
Terminating a Lease During Holding Over
It’s common for a lease to provide both the tenant and the landlord the right to terminate the hold over period by providing notice. Although the notice period will vary, it’s typically 30 days (or one month).
This presents advantages and disadvantages for both parties. For instance, tenants can terminate the lease without having to negotiate with the landlord the terms of surrender. However, the landlord can also easily terminate without reason, meaning the tenant must find a new premises on short notice.
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 continuing 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 hold over 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, get in touch with our commercial leasing lawyers on 1300 544 755 or fill out the form on this page.
Was this article helpful?
We appreciate your feedback – your submission has been successfully received.