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San Diego Commercial Leases and Holdover Clauses

If you sign a commercial lease for your San Diego business, the lease will state that it is in force for a certain amount of time — three years, five years, or whatever has been negotiated. Very likely there is also what is called a “holdover clause” that will vary in terms of the words used and the intent of the parties.

In general, a holdover clause governs what happens if you — the tenant — do not move out at the end of the lease (or if you fail to exercise any options to renew the lease). There may be many reasons that a tenant does not or cannot move out at the proper time. Maybe the tenant has not found a new space, maybe the new commercial space was supposed to be available on time, but the new space is not yet available, and more.

If there is no holdover clause in your lease, then California law provides a “default” rule which provides that the lease is converted to a month-to-month tenancy under the same terms and conditions of the expired commercial lease. See Cal. Civ. Code, § 1945. However, as noted, nearly every commercial lease has a holdover clause. A common holdover clause provides that the lease becomes month-to-month and that the tenant’s rent is substantially increased from what it was. An example might look like this:

Holdover. If Tenant fails to surrender the Premises upon the expiration of this Lease, Tenant’s tenancy shall become a month-to-month tenancy and shall continue to be subject to the terms and conditions of this Lease and Tenant shall pay, as Monthly Rent, rent equal to 200% of the Monthly Rent applicable during the last calendar month of the term of this Lease.”

In this example, if you — the tenant — were paying $2,000 a month, during any holdover months, your rent would be $4,000 a month. In general, in “good” rental markets, landlords want tenants to vacate so the repairs and buildouts can be completed for new tenants. Substantial rent increases like those commonly found in holdover clauses provide strong financial incentives for the former tenant to vacate. Note also that a month-to-month tenancy is subject to a quick termination and possession proceedings. Typically, only a 30-day notice is required for a month-to-month tenancy. So, the landlord has the ability to move quickly to obtain possession. Sometimes, a landlord wants to immediately begin eviction proceedings and will insist that the holdover clause state that no month-to-month tenancy is allowed. Even under those circumstances, the rent required will be increased in the same manner.

It is important to have a good corporate attorney help draft and negotiate a commercial lease and it is important to critically evaluate the holdover clause. It is also important to consult your business attorney toward the end of the lease if there is some possible need for a holdover. In many cases, advanced notice can result in a negotiated solution or, at the minimum, you will learn that the landlord will be strict in requiring that the premises be vacated.

San Diego Commercial Leases: Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard was recently named as a “Rising Star” by Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard offers legal services for San Diego and California businesses including lease drafting and review. Mr. Leonard proudly serves business owners and residents in San Diego and in the surrounding communities.

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