Avoid Disputes When Enforcing Tough Holdover Clause

Most leases contain a “holdover clause,” which entitles you to a holdover premium—typically anywhere from 150 percent to 300 percent of the rent amount—if the tenant remains in the space after the lease ends. Most holdover clauses will increase—that is, step up—the holdover premium over time to increase the pressure on the tenant and generate more holdover rent.

But if your holdover clause is like many we've seen, it may have an ambiguity that could weaken its effect and cause you to get less holdover rent than you expected. Here's the ambiguity: Suppose the lease says the holdover premium steps up—say, from 150 percent to 200 percent of the rent—if the tenant continues to hold over past a certain date. Once that date passes, does the 200 percent stepped-up holdover premium apply retroactively from the first day of the holdover period? Or does it kick in only after the date of the step-up? This ambiguity can lead to lengthy and costly disputes with the holdover tenant over how much holdover rent the tenant owes you.

To avoid this battle, CLLI, with the help of Marc L. Ripp, in-house counsel for The Gale Company, will tell you how to draft a holdover clause that's clear about when a stepped-up holdover premium applies.

Ambiguous Holdover Clause Leads to Dispute

A clearer holdover clause could have helped a New Jersey owner avoid a long and heated dispute with a holdover tenant, according to Ripp, who's familiar with the situation. The holdover clause said that if the tenant held over in its space for 90 days or less, the “Tenant shall pay Landlord 150%” of the rent. It also said that if the tenant held over beyond the 90 days, the “Tenant shall pay Landlord 200%” of the rent.

The tenant held over in the space for 120 days. When the owner tried to collect 200 percent of the adjusted minimum rent for the entire 120-day period, the tenant balked. The tenant insisted that it owed 150 percent of the rent for the first 90 days and 200 percent of the rent for only the remaining 30 days of the 120-day period. Al-though the tenant ultimately gave in, the dispute was costly and time consuming, Ripp says.

Spell Out Time Points in Lease

To prevent disputes like this, make it clear that the stepped-up holdover premium applies retroactively, from the first day of the holdover period, advises Ripp. This not only makes the holdover clause more effective, it gives you more holdover rent.

To do this, first have the holdover clause set an initial holdover premium and say it applies if the tenant holds over for up to a set number of days after the holdover period begins, says Ripp. For example, say that if the tenant holds over in its space for a period of, say, 30 days or less starting from the first day of the holdover period, the tenant must pay 150 percent of its then adjusted minimum rent, he says.

Then say that the holdover premium steps up if the tenant holds over more than a certain number of days—say, more than 30 days. And this stepped-up holdover premium applies from and includes the first day of the holdover period through the date the tenant moves out of the space, he adds. CLLI0037

Model Lease Language

• a. If Tenant holds possession of all or any part of the Premises for [insert #, e.g., 30] or fewer days beyond the Expiration Date or Termination Date, as applicable, Tenant shall pay Landlord [insert %, e.g. 150%] of the Adjusted Minimum Rent on the entire Premises from and including the first (1st) day of holdover until the holdover period ends.

• b. Notwithstanding the foregoing, if Tenant holds possession of all or any part of the Premises for more than [insert #, e.g., 30] days beyond the Expiration Date or Termination Date, as applicable, Tenant shall pay Landlord [insert %, e.g. 200%] of the Adjusted Minimum Rent on the entire Premises from and including the first (1st) day of holdover until the holdover period ends.

Practical Pointer: Once the stepped-up holdover premium kicks in, send the tenant an invoice for the retroactive difference between the stepped-up holdover premium and the prior holdover premium, says Ripp.

CLLI Source

Marc L. Ripp, Esq.: Counsel, The Gale Company, 100 Campus Dr., Ste. 200, Florham Park, NJ 07932; (973) 301-8057; MRipp@thegalecompany.com.