Lease Expiring: Holdover Clauses in Industrial & Retail Leases

When the premises lease for a business expires, what happens?  Does it just become a month to month lease at the same rate as before?  Do you have the right to stay in the premises?  Once a Commercial Retail or Industrial lease expires, the lease doesn’t necessarily convert to a month to month lease.  Often times a Commercial Retail or Industrial lease will have a Holdover clause that will dictate the terms of maintaining possession of the leased space.

What are the primary issues addressed in a Holdover clause for a Retail Commercial Lease?

• Specifies the lease rate
• Specifies any damages owed to a Landlord

The main thing that Holdover clauses address in Commercial Retail/Industrial leases is the lease rate going forward during the period that the lessee/tenant maintains possession of the premises after the expiration of the lease term.  This can be a continuation of the most recent lease rate, but often is significantly increased over the most recent lease rate.  We have seen a range of increases from 10% to up to 100% (Double!!!) from the previous lease rate.  So, you will want to make sure to know what, if any, lease rate increase the Holdover clause in your lease calls for.

The reasoning behind having a holdover clause have such an onerous increase in the base rate is for the property owner to have a hedge against a tenant maintaining possession of the space at below market rate beyond the agreed upon term of the lease.

What this means is that If your holdover clause calls for an increase in your lease rate that is more than to your liking, then it is important to begin negotiations in advance of your lease expiring to secure a new lease at rates that are affordable for your business.

Additionally, pay attention to the rest of the wording in the Holdover Clause for other modifications of terms, such as a damages provision for the opportunity loss of Rent if the Holdover Lease Rate is below market rent rates.

Contact our client care manager Sonia Chhabra for more information on your options to get the best lease rate if your lease is expiring or you are in Holdover by telephone at (888) 926-9193 or email cs@justelementary.com