Real Estate Articles
Written by Brent Pace for Gaebler Ventures
Sometimes you need to stay in your current office space after your lease has expired. Real estate professionals call this "holding over." Here's what you need to know if you end up having to hold over in your current space while waiting to get into a new one.
Sometimes you may find that you need to stay in your current office space after your lease has expired.
This phenomenon, called "holding over" is not that uncommon in the commercial real estate world. There are a few important things you should know before you attempt to hold over in a space.
Reasons for Holding Over
The most common reason for holding over has to do with scheduling issues for your new space. It is not uncommon for a tenant to under-estimate the amount of time it will take to sign a lease and construct a new space. Just know that renegotiating a lease with your current Landlord is much quicker than negotiating for a space with a new Landlord. If construction build out is required on a new space that will take several months as well. A good rule of thumb is to open discussions with your Landlord at least 6 months in advance of your lease expiration. This will give you some time to explore other options. If you take another option you will need several months to get the space prepared if tenant improvements are required.
Other reasons for holding over include if negotiations on other spaces fall through, or simply a lack of planning. Don't let this happen to you. Be sure to track your lease expiration and notice dates carefully.
Check Your Lease
The first thing you need to do is check your lease. Your lease will specify the kind of notice your Landlord requires as well as important dates relating to your lease expiration. Often a lease will have very specific language about holding over. Here's an example of generic holding over language from a lease:
"Any holding over after the expiration of the term hereof or of any renewal term with the prior consent of Landlord shall be construed to be a tenancy from month to month at a rate of 120% of the prior applicable Basic Annual Rent and on the terms herein specified so far as possible."
Note that the language specifies a rate, in this case 120%. In many cases it can be as high as 150% or 200% of your former base rent. This is common, and it shows just how expensive holding over can be. If holding over can be avoided, it is wise to do so.
Check State Law
Another important thing to check is the laws regarding holding over in your State. Many states go to great lengths to protect tenants (both commercial and residential) from aggressive Landlords. Your lease should specify which State's law the lease is subject to. This is usually the state where the building resides. This section of the lease is often referred to as "Governing Law." Once you know which state is governing, check the local laws to make sure that nothing in your lease or your Landlord's actions runs contrary to your rights as granted by State law. For instance, some states may limit the penalties a Landlord can charge you for holding over. Make sure you know the law so that you can protect yourself from an aggressive Landlord that wants you out of the space.
Brent Pace is currently an MBA candidate at University of California at Berkeley. Originally from Salt Lake City, Brent's experience is in commercial real estate development and management. Brent will have tips for small business owners as they negotiate their real estate needs.
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