Holding Over - What happens when a commercial tenant remains in occupation after the expiry of a lease?

When a tenant, under a commercial lease, which has been contracted outside of the security of tenure provisions of the Landlord & Tenant Act 1954, remains in occupation beyond the fixed term of their lease agreement, the situation is commonly known as "holding over." This presents numerous legal and practical challenges for landlords.

Why would a tenant hold over?

This situation often arises due to oversight, negotiation delays, or simply because the tenant wishes to continue occupying the space without committing to a new lease term.

What if the landlord is happy for the tenant to remain in occupation?

If the landlord is happy for the tenant to remain in occupation they should still formally demand possession of the property followed up by a second letter setting out terms for a new lease and requiring the tenant to enter into a formal Tenancy at Will for the interim period.

Acceptance - In some cases, landlords may tacitly or explicitly accept the tenant's continued occupancy. This acceptance can create an implied Tenancy at Will terminable without notice, however the landlord should push for the tenant to enter into a formal Tenancy at Will to formalise their occupation. This position is not suitable for a prolonged period of occupation, the landlord must be careful that a periodic tenancy is not inadvertently created as this would have stricter conditions in relation to termination as the tenant would gain security of tenure under the Landlord & Tenant Act 1954.

Negotiation - Landlords may choose to negotiate a new lease agreement with the holding over tenant. This renegotiation provides an opportunity to update terms, adjust rent, or impose penalties for the holdover period. Negotiation allows the landlord to formalise the arrangement and ensure both parties are clear on their rights and obligations moving forward. The intervening Tenancy at Will automatically ends when the new lease is completed.

What if the landlord requires the tenant to vacate?

If the landlord is seeking to recover the property they should not accept any further rent (or other payments) from the tenant relating to any period after the end of the fixed term.

Peaceable re-entry - the landlord has the right to peaceably re-enter the property and change the locks. However, the tenant retains the right for a reasonable period of time following peaceable re-entry to access the property to collect their belongings. This route of action poses its own risks and the landlord should give careful consideration to these before proceeding to personally recover the property.

Legal Action - When negotiations fail or if the landlord prefers a swift resolution, legal action may be necessary. Landlords might pursue eviction proceedings or sue for damages related to the hold over. However, legal action can be time-consuming and expensive.  The landlord can seek payment of rent for the period the tenant holds over, additionally, the landlord may be entitled to compensation for any losses incurred due to the tenant's holdover, such as lost rental income or expenses related to finding a new tenant.

Offering Incentives - In some cases, landlords may incentivise the tenant to vacate voluntarily by offering concessions or financial incentives. This approach can expedite the process while minimising potential conflicts. However, landlords must weigh the costs against the benefits of such incentives.

Can the landlord mitigate the risk of a tenant holding over?

There is no failsafe way to ensure that the tenant does not hold over, however,

the landlord should proactively place the tenant on formal notice prior to the end of the lease term that vacant possession of the property will be required on the expiry of the lease. If the tenant still fails to vacate then any of the above actions can be pursued.

Legal Considerations

There are various legal considerations that a landlord must take into account when dealing with a holding over tenant. It is therefore crucial that landlords follow the correct legal procedures and seek professional advice if unsure about their rights and obligations in dealing with a holding over commercial tenant.

Conclusion

Dealing with a holding over tenant poses some challenges for landlords, these issues require a balance of legal, practical, and strategic considerations. Whether through negotiation, legal action, or incentives, landlords must carefully evaluate their options and select the approach that best aligns with their long term objectives and circumstances. By understanding their rights and responsibilities, landlords can effectively safeguard their interests while maintaining positive tenant relations.