Avert Holdover Penalties with Proper Planning

In most commercial leases, a tenant will pay a penalty for failure to vacate the premises in a timely fashion at the end of the lease term. Said penalties are often stated as 1.5-2.0 times the rent. Tenants may opt to negotiate this number down to a more acceptable amount if/when reasonable circumstances arise to hinder a prompt departure.

Holdover penalties exist to encourage tenants to move out on time and allow landlords to conduct their business unfettered by other obligations. Bear in mind—landlords are constrained by their own agenda.  They keep schedules of expiring leases and base their business plans and revenue projections on them. Therefore, when a landlord knows a lease is expiring, and the existing tenant is leaving, they will proactively market the space and pursue other companies.  If they successfully locate a new tenant, they will often promise delivery of the premises on a certain date, with possible monetary penalties for non-compliance to get that tenant into their new space on time.

Tenants should understand the position a landlord assumes at the end of the lease term. In doing so, they are able to plan ahead and protect themselves from unforeseen delays at the end of the term of the lease and thereby avert paying a penalty.