The unintended consequences of accommodating the commercial holdover tenant - by Noble Allen

It is almost never a good idea for a landlord to treat a commercial holdover tenancy with anything less than the urgency it deserves. While there may be certain nuances that might exist from jurisdiction to jurisdiction, this need for exigency is uniform in all jurisdictions. With respect to CT law, in the absence of a specific provision in the lease to the contrary, a commercial tenant that fails to surrender the demised premises after the lease term has expired (or in some cases, failing to vacate after the lease has been terminated based on a default) does not result in the creation of a new tenancy, nor does it automatically convert the terms of the recently expired lease to that of a month-to-month tenancy. Rather, such a tenancy is legally defined as a “tenancy at sufferance,” which is a status that does not afford the occupant any legal right to continue to claim possession of the premises for any set term. In common parlance, this type of tenant is also often simply referred to as a holdover tenant.

This situation commonly arises in one of two ways: Either because the parties are in the midst of various levels of lease negotiations and have been unable to come to a meeting of the minds as to the final terms of an extended tenancy, thereby causing the tenant to continue to occupy the premises—with or without the landlord’s consent—or the holdover inertia was created when the tenant refused to vacate the premises after the lease term had expired. Regardless of the specific reason for the holdover, the implications of a tenant in holdover status should discourage any level of complacency on the part of the landlord. Below are some reasons why.

Because the holding over by the commercial tenant does not create a new tenancy, it also follows that such a tenant would not be required to comply with certain other provisions in the lease (unlike the residential tenant who is mandated to continue to comply with certain statutory obligations while holding over). 

While it is the law in Connecticut that a holdover tenant still has an obligation to continue to make “use and occupancy” payments (or pay the fair rental value) to the landlord for its continuing-holdover occupancy, tenant has no legal obligation to continue to pay “rent,” nor to continue to comply with the various other crucial lease provisions in the now-expired lease—such as making Common Area Maintenance (“CAM”) payments, including real property taxes; complying with insurance obligations; repair obligations; etc. Clearly, no landlord knowingly wants to be exposed to such risks.

The insurance issue particularly deserves further scrutiny: to the extent that the validity period of certain certificates of liability insurance (which the tenant is generally required to maintain during the lease term, naming the landlord as an additional insured) would have been tied to the term of the lease, any casualty or incident that occurred within the tenant’s demised premises during the holdover period could create havoc for the landlord when it attempts to tender a contested claim for defense and/or indemnification to a putative insurer, but is subsequently denied (validly) because the coverage term of the liability policy did not extend beyond the term of the lease and into the holdover period.

Such a scenario should provide sufficient motivation for the landlord to prioritize finalizing the lease extension negotiations with the tenant far in advance of the lease expiration date—and if such agreement is not feasible or cannot be reached, the landlord should use all deliberate speed to take the necessary steps to promptly evict the tenant from the premises in order to eliminate any potential exposure to the landlord during the holdover period.

Noble Allen is a partner in Hinckley Allen’s litigation and real estate groups, Hartford, Conn.