Want to Avoid Paying 300% More in Office Rent? Understanding a Holdover Penalty in Your Lease
The Holdover clause addresses what occurs if a Tenant remains in the premises after the expiration date of a lease.
The Holdover provision provides, that if a Tenant remains in the premise after a lease expires, even with the Landlord’s consent, the rental cost may be increased by upwards to 300%!
Why?
Rent provides an income stream to the Landlord, for Tenants’ use of the asset. Landlords want to avoid any interruption of income stream and want Tenants to renew their leases in a timely fashion. Hence the high cost of Holdover.
Tenants should check their Lease of Memorandum Start Date, confirming the start date of their lease, that the Landlord provides upon lease commencement. If the Landlord did not provide it, or the Memorandum of Lease Start Date cannot be located, the lease should be referenced. Tenants should have a clear and precise understanding of the exact date their lease expires to insure rent dollars are not spent unnecessarily.
Holdover provisions can be mitigated when negotiating a lease. A few strategies, but not all-inclusive, that we have implemented for our clients, is a grace period prior to Holdover kicking in, a sliding scale of a penalty, and narrowing Holdover to Base Rent only.
Landlords are not pulling back on their right to exercising the provisions of Holdover clauses. Many tenants are uncertain what the future holds given COVID and have leases that are expiring.
Tenants would be wise to keep their eye on the ball and be proactive with their Landlords to avoid the Holdover penalty.
The concept of Holdover extends beyond the Holdover penalty and is complex. Contact Mazirow Commercial at (805) 449-1945 to discuss how Tenants may protect themselves and minimize Holdover.