Don't Allow Tenant to Become “At Will” After Lease Expires

Resist the temptation to allow a good tenant to stay after the lease expires, without signing a new one. It will become a “tenant-at-will,” giving it a potentially powerful status—even without a lease. A shopping center owner in Georgia was faced with this situation when a tenant-at-will claimed that it did not owe operating costs for the time period that it continued to run its dry cleaning business after the lease had expired.

The owner hadn't charged the tenant for operating costs that accrued during the lease because it was difficult to calculate them due to the county's ongoing reclassification of the property. After the lease expired, the tenant continued to run its business for two years before notifying the owner that it intended to vacate. The owner billed the tenant for operating costs for the entire period of time that it occupied the property—which totaled $33,000—but the tenant refused to pay the portion of the bill for the two years it stayed past the lease's expiration.

The owner sued the tenant, which asked the court for a judgment in its favor without a trial. The court granted the tenant's request, stating that its status as a tenant-at-will during the two years that it had occupied the property after the lease expired barred the owner's claims for operating costs for that period of time.

However, a Georgia appeals court reversed the lower court's ruling. It stated that while the owner and tenant orally agreed to extend the lease past its expiration, they did not specify the length of the extension. Under Georgia law, where no time is specified for the termination of a tenancy, the law construes it to be a tenancy-at-will; the tenant-at-will holds the premises subject to the general terms and conditions specified in the lease. The general terms and conditions of the lease would include provisions for rent and operating costs, the appeals court pointed out.

The appeals court noted that, under the terms of the lease, the tenant owed “Minimum Rent” each month. The paragraph titled “Operating Costs” provided: “Tenant shall pay to Owner along with its monthly installment of Minimum Rent, as Additional Rent, Tenant's proportionate share of all costs incurred by Owner in maintaining … the portions of the Shopping Center which are the responsibility of Owner hereunder (“Operating Costs”).”

Here, the lower court found that because of the tenant's status as a tenant-at-will it was not obligated to pay operating costs after the lease's expiration. Given that the lease specifically characterized “Operating Costs” as “Additional Rent,” and a tenant-at-will was subject to the general terms and conditions of the lease—including paying rent—the appeals court disagreed. Accordingly, it reversed the lower court's grant of a judgment in favor of the tenant without a trial. In another jurisdiction, however, an owner with an at-will tenant might not be so lucky [Radha Krishna, Inc. v. Desai et al., December 2009].