When a commercial lease expires, landlords and tenants may face uncertainty about what happens next. This often depends on whether a ‘holding over’ clause exists within the lease agreement, allowing the tenant to continue occupying the property on a month-to-month basis. Let’s break down what happens when a lease ends and the implications of the holding over a period.
What Is a Holding Over Clause?
A holding over clause is a provision in many commercial leases that allows tenants to continue occupying the premises after the lease term ends, typically on a month-to-month basis. This arrangement is designed as a short-term solution to prevent disruption, enabling the tenant to stay while the landlord and tenant negotiate a new lease or make other arrangements.
During the holding over period, the tenant usually remains subject to the same terms and conditions of the original lease unless the lease agreement specifies otherwise. This means rent, maintenance obligations, and other responsibilities generally continue as before.
When Is Holding Over Allowed?
For a tenant to remain legally in the property during holding over, the landlord must agree either explicitly—such as signing a new agreement—or implicitly by accepting rent payments and allowing the tenant to stay without objection. Without the landlord’s consent, the tenant’s continued occupation may be considered trespassing, opening the door for legal action.
What Happens When a Lease Ends Without Renewal?
If a commercial lease expires and the tenant continues occupying the property, several scenarios can occur:
- Renewal or Extension: Both parties agree to continue the lease, either under the same terms or with modifications.
- Vacating the Premises: The tenant moves out by or before the lease expiry date.
- Holding Over: The tenant remains on the property with the landlord’s consent under a month-to-month tenancy.
If no agreement exists, the landlord can demand the tenant vacate the property or initiate legal proceedings if the tenant refuses to leave.
Legal Implications of Holding Over
While a holding over clause offers flexibility, it is important to understand that this period is temporary and can be ended with short notice—usually one month’s written notice—from either party. This arrangement protects landlords by giving them the ability to regain possession if they wish to lease to another tenant or use the property themselves.
A recent Queensland Supreme Court case involving Ultra Tune Nerang illustrates the risks tenants face when relying on holding over arrangements. After failing to exercise a renewal option, the tenant remained on a month-to-month basis, but when they sought to formalize a new lease, the landlord refused. This case demonstrates that holding over is not a guarantee of long-term tenancy or lease renewal.
Calculating Holdover Rent
Rent during the holding over period—often called holdover rent—can either remain the same as under the original lease or be increased if both parties agree. Some landlords impose higher “penalty” rents during holdover to discourage tenants from staying long term without a formal lease.
If no agreement is reached on rent, landlords may pursue legal action for unpaid rent or eviction.
Risks of Holding Over
For Tenants:
- Possible eviction with minimal notice.
- Risk of paying higher rent or damages if landlord imposes penalty fees.
Potential legal costs and disputes if landlord refuses ongoing occupancy.
For Landlords:
- Delay in leasing to new tenants if current tenant refuses to vacate.
- Possible financial losses if rent is not paid during holding over.
- Costly and time-consuming eviction proceedings if disputes arise.
How to Avoid Disputes Around Holding Over
To reduce risk and confusion, landlords and tenants should:
- Clearly outline holding over terms in the lease agreement.
- Ensure timely communication between both parties.
- Seek legal advice if necessary.
Conclusion
The end of a commercial lease doesn’t always mean the end of tenancy. Understanding the holding over period and its legal implications helps both landlords and tenants prepare and protect their interests. Holding over can be a useful short-term solution but carries risks if not properly managed.
If you are facing a holding over situation or want to ensure your commercial lease agreements are drafted to minimise risk, contact NB Property Law today for professional legal advice tailored to your commercial property needs.