One of the more complicated situations real estate investors face is having a holdover tenant, who doesn’t leave a rental property after a lease expires, or one who is in a property without having signed a formal lease. How long can a tenant stay after the lease expires? What rights do owners and residents have? It varies state by state.
Holdover tenants are in something of a legal gray area, being without a proper contract but not necessarily being simply trespassers. It’s not an uncommon situation for property owners to deal with.
Real estate investors should be aware of the laws that govern relationships between property owners and renters before entering into a lease agreement.
The two types of holdover tenancy: at will and at sufferance
A tenant who remains in a property after a lease has expired is referred to as a holdover tenant.
There are two types of holdover tenant.
Tenancy at will
The holdover tenant may have a tenancy at will, in which the renter continues to pay rent and remains with the owner’s consent but without a lease.
If the owner accepts a rent payment after the lease expires, they implicitly or explicitly enter into an agreement.
State and local laws specify what happens if the owner accepts further rent payments after a lease expires.
In some instances, accepting rent payment resets the lease term. For example, if a yearlong lease expires and the owner accepts a rent payment thereafter, it initiates a new lease that lasts a year. In other situations, it may instigate a month to month lease.
Tenancy at sufferance
Tenancy at sufferance is an agreement by which a holdover tenant is legally permitted to stay after the lease expires, until such time as the owner demands that they vacate the property.
The conditions of the original lease must be met, or the owner may evict the holdover tenant.
The term “sufferance” refers to the absence of objection on the part of the owner without the owner’s explicit approval.
The distinction between a holdover tenant at sufferance and a trespasser is that the tenant at sufferance did at one time have an agreement with the owner.
If residents pay rent with a lease that does not specify an end date, it’s called a periodic tenancy. Periodic leases have no end date or fixed term, and remain in place until either party notifies the other that they wish to terminate the arrangement.
This may be a mutually beneficial situation, but neither the tenant nor the owner in a periodic tenancy has all the rights enumerated in a formal lease agreement.
For the owner, the principal disadvantage of this arrangement is the lack of definite income from the rental property. If the renter leaves at a time when there are many vacant homes on the market, the owner may find themselves with an extended vacancy.
The signing of a new lease offers a property owner the opportunity for periodic rent resets. In a periodic tenancy, it may be difficult to find the ideal time to impose rent increases.
Avoiding unwanted holdover tenants
How can property owners avoid a situation where a holdover tenant is on their property?
Clear communication with residents
To avoid unwanted holdover tenants, owners should always include a clause in the lease specifying what happens when the lease expires.
For example, a yearlong lease might stipulate that when the lease expires, the renter becomes a month to month tenant, or that the resident is required to vacate the premises in the absence of a new lease.
Leases should clearly indicate how much notice renters should give the owner before the lease expires if they want to renew their lease and how much notice owners expect if the renters do not want to renew. Many states require renters to give the owner as much as 120 days’ notice.
Owners who have a lease with a current renter that does not include such information may wish to add an addendum to the lease.
When a renter’s lease is nearing expiration, owners should contact the resident before their decision date, reminding them that the date is approaching and informing them of how the owner would like to receive notification of their decision. This makes the owner’s position clear and leaves no room for ambiguity.
Investors should be careful when buying tenanted properties
People sometimes use the same legal terms to mean different things, so when an investor is considering buying a property that has residents living in it, it’s helpful to have written information from all parties.
Prospective buyers of a tenanted property can request an estoppel agreement, which gives rental information such as lease terms, rent amount, and any other agreements the renter believes to be in effect.
Renters are not required to provide such information.
If renters decline to provide this information, it may indicate a problematic relationship between the renter and the current owner. Prospective buyers should at least obtain copies of any formal lease agreement that is in effect.
How can owners induce holdover tenants to vacate the property?
If the owner does not accept payments, and the former tenant refuses to leave, they can be considered a trespasser, and the owner may evict them, or may offer them a payment to vacate.
Eviction after a lease expires
In order to remove a holdover tenant, the owner must initiate a holdover proceeding, usually in small claims court. This is essentially an eviction that is not based on delinquency with rent.
The owner must provide a notice of termination stating the reason for the termination and the date on which the renter must move, and informing the renter that the owner will begin legal action if the renter doesn’t vacate the property.
The eviction process can last for weeks or months, depending on how quickly the resident responds to the official summons and complaint, or whether they choose to answer it at all. Then there’s the trial, and, if the decision doesn’t go their way, residents may choose to appeal. In tenant-friendly states, this process can take up to several months.
Cash for keys
To avoid the eviction process, which can be lengthy and costly, investors may choose to exchange cash for keys.
In this scenario, the owner offers a certain amount in cash, which is negotiable, perhaps 10 percent of a month’s rent, for the residents to turn over the keys. This may be a last resort before pursuing eviction.
If the investor takes this approach, they should ensure that the resident has moved all their belongings out of the home before handing over the cash.
What a property owner cannot do to get a resident to leave
While dealing with holdover tenants can be a costly and frustrating experience, there are several measures investors are legally forbidden to take.
- Change the locks
- Shut off utilities
- Harass a tenant
- Remove a tenant's personal property
- Threaten to or use force
Dealing with a holdover tenant can be a stressful situation. Clear written communication and a thorough lease agreement can avoid unwanted holdover tenancies. The eviction process can be lengthy and expensive, and paying a resident to vacate the premises may be the quickest and easiest way to avoid a formal eviction.
Even if dealing with an unreasonable renter, property owners should always be sure to act professionally and responsibly.