A holdover provision in a commercial lease dictates the negotiated terms that will apply in the event the tenant does not surrender the premises at the expiration or termination of the lease. Holdover provisions are helpful in guiding procedures and rent rate for when a tenant remains in possession of a premise after their lease has expired. Typically, a tenant that “holds over” the premises, is treated as a tenant at sufferance. In the absence of a negotiated holdover provision in a commercial lease, tenants will still be bound by state law, and default holdover terms vary depending on the state. It is important for both landlords and tenants to understand and consider these state laws when negotiating commercial leases to adequately prepare for damages and remedies if a tenant overstays the lease expiration.

Although most states do not have statutes that provide default rental rates for holdover periods when left unaddressed in a commercial lease, state courts have established noteworthy interpretations of a holdover tenant’s liability. In Massachusetts, Rhode Island, and Connecticut, various courts have held that a holdover tenant is considered a tenant at sufferance based on the specifics of the interactions between the parties. Generally, in these states, courts have held that beyond the expiration or termination of the term of the lease, such tenant is liable for rent at the fair rental value of the premises. Depending on the strength of the market at the time the lease is signed compared to the time the holdover occurs, the fair rental value of the premises may be significantly different from what the parties originally negotiated. In all three of these states, courts have often found that “fair rental value” is equal to the last agreed upon rent, although this is not always the case. Therefore, failure to negotiate a holdover provision in the original lease could dramatically favor one party or the other in these states. In Connecticut, unless specified in the lease, a commercial holdover tenant may not even be subject to the original terms of the lease relating to maintenance and repair of the premises, which could have significant implications.

Other states determine tenant at sufferance rent rates in a different manner. In Illinois, based on state statute, a holdover tenant may be liable for double the yearly rental value if a tenant willfully holds over and remains in possession of the premises in bad faith. New York handles holdover tenancy in a few ways depending on the original term of the lease: if the original lease is longer than one month and the landlord continues to accept rent after the expiration of such term, then so long as there is no other agreement present, the tenant is then subject to a month-to-month tenancy rather than a tenancy at sufferance. However, if the original term of the lease is indefinite and the tenant notifies the landlord of its intention to vacate but still holds over past that date, then the tenant may be liable for double the rent rate they otherwise should have paid. Either way, one or both parties may be impacted more significantly than anticipated. Even before considering the potential damages that a landlord might incur if a tenant holds over and prevents a subsequent tenant from taking over the premises.

Without a well negotiated holdover provision in a commercial lease, both tenants and landlords are at risk of being subject to the discretion of each state’s default holdover terms based on statute or court precedent. Especially when negotiating and amending commercial leases, landlords, and tenants should consult counsel to preserve their interests in the event a tenant holds over the premises after the expiration or termination of the lease term.