Holdover Clause in Commercial Lease

May 9, 2018 | By Charles Botensten

Q: I am a licensed real estate salesperson and I am representing a tenant who is negotiating an office lease with a landlord. The landlord is insisting that in the event the tenant does not vacate the premises at the conclusion of the lease (a "holdover"), the tenant will have to (i) pay a higher rent for the period of the holdover and (ii) indemnify the landlord for losses the landlord incurs as a result of the tenant’s holdover.  Is this a customary and reasonable request?

A: Yes, it  is customary and reasonable for a landlord to include a provision in a lease stating that in the event of a tenant’s holdover, the tenant will (i) be responsible to pay two (2) to three (3) times the rent called for in the last year of the lease and (ii) indemnify the landlord from and against any loss, cost, liability, claim, damage, fine, penalty and expense (including reasonable attorneys' fees and disbursements) resulting from the holdover, including any claims made by any succeeding tenant or prospective tenant created by  such holdover.

Although a landlord should be entitled to be compensated for the losses and liability resulting from a tenant’s holdover, a tenant should attempt to limit such liability, particularly if the tenant’s holdover is only for a short period of time. Ideally, the landlord may agree to (a) either delete the indemnity language or agree that the indemnity will not become effective until the first 30 days of the holdover expires and (b) reduce the increased rent penalty to one and one-half (1 ½) times the rent for the first 30 days of the holdover and two (2) times the rent continuing beyond the first 30 days of the holdover.

Important Tip: A lease is a contract between a landlord and the tenant.  Although there are "standard and customary" provisions, such provisions are negotiable. The landlord and tenant should engage attorneys who are familiar with and negotiate leases on a regular basis to represent their interests.

The Legal Line Question by:

Neil B. Garfinkel
REBNY Broker Counsel

Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP