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Holdover Tenant

A tenant refusing to vacate the rented property after the expiry of the rental agreement

What is a Holdover Tenant?

A holdover tenant continues to live in the tenement after the expiry of the initial agreement. Effectively, there is no lease agreement, and the owner and the tenant may come to an unsaid agreement. The tenant continues to pay the rent, and, in some jurisdictions, it may be treated as a lease renewal under the same terms as the previous one.

 

Holdover Tenant

 

A month-to-month rental clause included in the lease often prevents a holdover tenant situation. The clause gives breathing room to both tenants and the owner. A holdover tenant may seem bad from the outset, but it is not always the case.

 

Holdover Tenant Causes

There are a number of reasons an owner may get into a holdover tenant situation. They may include:

  • An outright refusal by the tenant to leave due to a number of reasons, such as a medical emergency or no alternative accommodation being arranged.
  • The owner is not bothering to renew the lease.
  • A change in ownership of the property may lead to a requirement of a new lease, which can create a holdover tenant temporarily.

 

Advantages of Holdover Tenancy

 

For the tenant:

  • No rent increase because the rent can be increased only by an agreement.
  • It offers significant protection against eviction proceedings when the landlord has accepted the rent.
  • No changes to the tenement can be made without the tenant’s approval.

 

For the owner/landlord:

  • No lease agreement and paperwork are required.
  • The tenant still needs to pay the rent.
  • The landlord may refuse to make repairs without a lease agreement.

 

Disadvantages of Holdover Tenancy

The disadvantages of a holdover tenant to the tenants themselves and to the owner are a corollary of their advantages to the opposing parties.

 

For the tenant:

  • The tenant cannot ask the landlord to make repairs without a lease renewal that may come with more disagreeable terms.
  • Without a lease agreement, a tenant cannot include more suitable terms that may result due to changing conditions over time.
  • The rent must be paid, which may be disadvantageous without repair and upgrades.
  • The rent agreement can be converted into a month-to-month rental in some jurisdictions. and the landlord can evict with a one-month notice.

 

For the owner/landlord:

  • The owner may have to undertake costly eviction proceedings when the tenant refuses to leave.
  • The rent cannot be increased, and the property cannot be let out to another tenant.
  • No repairs and maintenance can be conducted.
  • Unauthorized use of the property by the tenant.

 

Remedies

In a fair number of situations, the landlord may not care about getting into a holdover tenant situation. In some cases, a new owner of the property can inherit a holdover tenant with the purchase of the property. The new owner can offer a new lease or may initiate eviction proceedings.

If the tenant agrees to new lease terms, which may include increased rent, the situation ends automatically. To be safe, the new lease terms should offer a month-to-month lease, which allows the owner to evict the tenant comparatively easily.

In case the tenant refuses to sign the lease, the owner will most likely send a notice to cure. The notice will inform the holdover tenant of the expiry of the previous lease, and a new lease must be signed if they wish to continue their occupancy.

At this point, the tenant may choose to leave if they do not agree to the new lease. If they don’t, the owner will inform the tenant that they will initiate holdover proceedings, which is similar to eviction. An unfazed tenant, even at this point, will be served with a notice of termination.

The notice of termination is a pre-requirement for eviction proceedings in a number of jurisdictions. This notice should ideally include the reason for termination, the date by which you should vacate, and the legal action that will follow in case of non-compliance.

 

Related Readings

CFI offers the Certified Banking & Credit Analyst (CBCA)® certification program for those looking to take their careers to the next level. To keep learning and advance your career, the following resources will be helpful:

  • Home Mortgage
  • Modified Gross Lease
  • Lessor vs Lessee
  • Month-to-Month Tenancy

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Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!