"Leasing Review - My Tenant Won’t Leave at the End of Its Term – Now What?" originally published on the NAIOP Minnesota online blog.
Your existing tenant’s lease has come to an end. You’ve lined up a new tenant, spent hours negotiating a lease, signed it up, and are ready to move forward. You only have one small problem; your existing tenant hasn’t vacated its premises yet. What can you do? A landlord’s behavior at this stage is key to how the courts will treat the existing tenant’s occupancy and therefore requires careful consideration.
How to Treat a Holdover Tenant
Under Minnesota law a landlord may either treat the holdover tenant’s occupancy as “wrongful” with no additional right of occupancy or as a tenant holding over under the terms of the existing lease. If the landlord selects the former, the landlord must follow specific rules to avoid an inadvertent extension of the lease term. First, the landlord must not dictate new lease terms for the tenant’s occupancy as such demands will be deemed to be an acquiescence to the tenant’s occupancy and therefor an extension of the lease term. Second, the landlord cannot accept rent from the tenant for the holdover period for the same reason. Third, if the tenant had any extension options and failed to comply with the applicable requirements under the lease for exercising such an option, the landlord must notify the tenant in writing prior to the expiration of the lease term that the tenant failed to comply with such terms and therefore has not exercised the option. Finally, the landlord should take concrete steps towards evicting the tenant as soon as possible including notifying the tenant immediately that the tenant no longer has the right to occupy its premises and that it must vacate, and initiating an eviction action.
If the landlord does not treat the tenant’s occupancy as wrongful, the tenant will be deemed to be occupying the premises pursuant to the terms of the existing lease. The question, however, is how long the tenant has the right to occupy its premises. If the lease is for a premises in an urban location and under a lease where the tenant pays rent on a monthly basis, the tenant will be deemed to be a month-to-month tenant unless the lease states otherwise and the landlord must give the tenant at least one month’s prior notice in order to terminate the lease term. Absent specific lease terms addressing a holdover, a tenant occupying a premises that is not located in an urban location, or not paying rent on a monthly basis, may be deemed to have extended the lease term for several months, a year, or more simply by continuing to occupy its premises after the expiration of the lease. A prudent landlord should therefore negotiate with its tenant the terms and conditions pursuant to which the tenant is occupying its premises during the holdover period.
Note also that the landlord’s decision is final and therefore the landlord should consider what the best action is for the landlord to take. The landlord cannot initially inform the tenant that it must immediately vacate its premises and subsequently attempt to charge the tenant rent, or initially demand that the tenant pay a holdover rental rate and then attempt to evict the tenant without the prior notice. A landlord must live with its decisions.
Lease Provisions Addressing a Holdover
Many leases include lease provisions that address a tenant’s holdover. Unless the lease provisions state otherwise, they will only control if the landlord does not treat the tenant’s occupancy as wrongful. The landlord reserves the right to evict the tenant at the expiration of the term regardless of the existence of holdover provisions in the lease.
Note also that if the existing lease contains unexercised options to extend the lease term, a tenant’s continued occupancy may indirectly exercise the option and extend the lease term unless the landlord states otherwise. A landlord should therefore control the situation by informing the tenant in writing that the tenant has not exercised its option.
At the end of the day the landlord’s and tenant’s behavior may be interpreted by the courts in ways that the parties did not intend. The landlord should therefore inform the tenant in writing what terms and conditions apply to the tenant’s occupancy or, if the landlord wants the tenant out, inform the tenant that it has no right to occupy its premises and will be evicted.
DISCLAIMER: This article is to be used for general information purposes only, not as a substitute for in-person evaluations. The information contained herein is not legal advice and no attorney-client relationship is formed through this article.