Should you be concerned about holdovers? Note, a holdover is not personal property left behind in a vacated unit. A holdover is a tenant that did not move out when the lease expired. Most leases convert to a month to month rent in these situations. Is that enough?
Why You Need To Be Concerned About Holdovers
The level of concern should be correlated with whether this tenant timely pays their rent or not. For instance, let’s say you have Tenant A and they’ve missed month 12 rent payment on their lease. They ignored notices. On the first day the lease expires, they clearly have not moved out. They are a holdover, but a deadbeat holdover. Beginning eviction procedures is the most likely next move.
Then you have Tenant B who just can’t seem to find any place they would rather live. Yet, they have not made any effort to renew or explain what is on their mind. Nor do they have any plan to move. They always pays the rent on time. The tenant converts to holdover status and now is legally a month to month tenant. Depending on your lease, you may or may not be protected.
Tenant B is the kind we prefer. Tenant B is going to make their rent payment at the same amount as they have all previous months. Why should they do things any differently? They also will find a new place to live, and never bother to tell you they are moving. Ultimately, they will leave. Month to month status offers a lot in favor of the tenant.
How To Avoid Holdovers?
So, how do you change the effect of a holdover tenant so that they prefer to not be month to month? A simple clause in your lease will solve all of your headaches. This clause just needs to make being a holdover a pricey proposition for your tenant. In a lease holdover clause we typically increase the rental rate by 10%-20%.
In this clause we also demand the tenant provide thirty days notice if they elect to go month to month. This creates plenty of notice, and extra revenue, during the holdover period. Most importantly, it discourages your tenant from becoming a holdover. It encourages more renewals prior to the expiration of the lease. It changes the possession arrow back to the owner’s side. Tenants do not want the holdover rental rate to kick in. So they plan. Or you hope they do.
Such a clause protects the landlord from the added risk the holdover creates. The extra rent paid from a holdover will help offset your expenses associated with the Tenant A types. Or maybe with this clause, Tenant A moves out and does not end up an eviction with related delays and costs.
Looking for help leasing or managing your property?
Learn about WILMOTH Group’s real estate services. We specialize in Indianapolis property management.
