Final Assessment: Tenant Retention, Lease Renewals, Holdover Clauses, and Access to Premises

A tenant becomes a holdover tenant if they fail to vacate the premises as required under the lease at the expiration of the lease term.

Landlords should include in their lease that the tenant indemnifies and agrees to defend and hold the landlord harmless from and against any claim of loss derived from tenant’s delay in surrendering the premises.

Landlords should include in their lease that if the tenant holds over its possession after the expiration or earlier termination of the original term or any extended term, such holding over shall not be deemed to extend the term or renew the lease, but such holding over thereafter shall continue upon the covenants and conditions set forth in the lease, except that the charge for use and occupancy of such holding over for each calendar month or part thereof (even if such part shall be a small fraction of a calendar month) shall be the sum of 1/12 of the highest annual rent rate set forth in the lease, times 200% to 300%, plus all other additional rent due under the lease.

Tenant advocates should try and negotiate that the holdover rent is no greater than 150% of the highest annual rent rate set forth in the lease.

Ideally for a landlord, the lease should include a rental penalty, but not indemnity language, in the event of a tenant holdover.

Ideally for a landlord, the lease should include both indemnity and rental penalty language in the event of a tenant holdover.

Tenants should not try and delete any indemnity language in a holdover clause.

Many landlords will require that a tenant’s wiring and cabling must be tagged by the tenant and removed by the tenant prior to the lease expiration or earlier termination of the lease.

Tenants don’t need to worry about their wiring or cabling being removed from the premises at the lease expiration or earlier termination of the lease.

An argument can be made by the landlord that the wiring and cabling left in the premises by a tenant after lease expiration should be considered a holdover due to tenant not fully vacating the premises.

At a minimum, landlords should include language in their lease that allows the landlord to enter the tenant’s premises at any time upon reasonable notice, or without notice in the event of an emergency, in order to examine the premises and make any repairs or improvements landlord deems desirable or necessary.

A tenant should attempt to negotiate into the provision that allows landlord access to the premises that in addition to the landlord being required to provide prior reasonable notice prior to any intended entry (unless in events of emergency), that the tenant or his representative must accompany the landlord upon any such entry and that landlord will use “commercially reasonable efforts” to minimize interfere with the tenant’s use and occupancy of the premises.

A tenant should readily agree to allow its landlord to include in its lease that in any situation, landlord is allowed to enter the premises when the tenant is not present.

Tenants should attempt to negotiate language within its lease requiring its landlord to provide a partial or full abatement of rent during any period the landlord is making improvements to the premises and landlord is materially interfering with the tenant’s use and enjoyment of the premises.

Landlords should include in their lease that if the tenant vacates its entire premises during the last month of the term of the lease, landlord has the right to (i) enter the premises and (ii) make any improvements and alterations without any rent abatement or liability to the tenant.

Landlords shouldn’t make sure to have the right in the lease to change any common areas and entrances in the building without the consent of tenant.

A tenant should request in their letter of intent and the lease a provision permitting them access to the property prior to the start date of its lease for the limited purpose of installing furniture, workstations and cabling and/or wiring and for storage purposes, provided it supplies landlord with its certificate of insurance prior to such entry.

Tenants should include a provision within its lease that gives them access to the premises 24/7/365.

A “failure to deliver possession clause” can be described as when a landlord fails to give access of the premises to a tenant by the commencement date stated in the lease.

Especially for a retail lease, tenants should expand the right to exercise a renewal option beyond only the named tenant, to any parent, affiliate, subsidiary, permitted assignee or subtenant of the named tenant.

Tenants should attempt to have the landlord provide a tenant improvement allowance at lease renewal of at least $5 to $15 PSF to allow the tenant to paint, carpet or otherwise improve its then “tired space.”

Many leases subtly, yet effectively, strip a tenant of its renewal rights if it has “ever been in default during the lease term.” To combat that impact, at a minimum, change the words “ever in default” to “then in default” and add the language “beyond the expiration of any applicable notice and cure period.”

Landlords prefer as much notice as possible (e.g., 9-12 months prior to lease expiration) for a tenant to exercise their renewal option. If the rent during the option period is tied into fair market value, given the time it takes to negotiate the renewal terms, the larger notice period can be beneficial for a tenant. However, if there is a pre-established rent for the option period, it’s preferred for the tenant to only have to exercise the renewal option 4 to 6 months prior to lease expiration.

Generally speaking, a common landlord fair market value (“FMV”) renewal option provision will state that the renewal rent will be the greater of (a) 95% of FMV; or (b) the base rent then in effect at lease expiration minus all tax, operating and other escalations.

If the rent during the renewal term is based on fair market value, a tenant needs to make sure that for the renewal term they keep the same tax and operating base year.

If the rent during the renewal term is based on fair market value (“FMV”), it is important for tenants to define exactly what FMV rent means within the lease.

When a tenant moves to another building, a landlord not only losses the revenue stream, but also incurs costs in finding a new tenant in the form of paying: (a) a full brokerage commission; (b) tenant improvement allowances, landlord demolition and space build-out costs; and (c) free rent concessions.