Most landlords don’t want to deal with vacancies. After all, a vacant property means it’s no longer generating income. When a property becomes vacant, it doesn’t generate cash flow to cover the cost of owning and operating a rental business.
That’s why most landlords prefer to have long-term tenants, so that they can continue earning income without having to deal with vacancies and re-renting the property.
While many landlords are more concerned about tenants leaving the property before the lease term ends, others encounter the opposite problem. That is, having tenants stay on the property even after the lease expires.
A tenancy typically lasts according to the term indicated in the lease or rental agreement. Some tenancies are fixed-term, which means that they automatically expire on the last day of the lease.
Other tenancies are on a month-to-month or week-to-week basis. If a tenant or landlord does not terminate the rental agreement, the tenancy will automatically renew.
What happens when the lease term has ended or has been terminated, yet the tenant refuses to leave the property? Technically, the landlord can let the tenant stay on the property after the lease expires or even without a lease.
This is referred to as a “holdover tenancy”. Having a holdover tenant in your rental property can cause many issues for your investment.
What Is a Holdover Tenant?
Fixed-term leases will automatically end on the last day of the term. However, if the tenants choose to stay on the rental property even after the lease expires, they essentially become “holdover tenants”.
Sometimes, when a landlord allows the tenant to stay at the property and continue paying rent, the tenancy becomes a month-to-month tenancy.
Under the law, a holdover tenant can legally stay in the rental home as long as the landlord allows them. If the landlord does not take any legal action to evict the holdover tenant, this means that the landlord is tolerating it.
In the end, the landlord may be faced with potential issues if they let the tenant remain on the property even after the lease expires.
Disadvantages of Having a Holdover Tenant
Allowing a tenant to remain at your property after the lease expires can lead to several potential issues and they can adversely affect your rental business. Some common issues that you need to be aware of include the following:
No Proper Lease Agreement
Since the lease agreement has technically expired, letting the tenant stay at the property means the tenant has no proper lease. There is no clear end date as to when the tenancy will end. This means that you won’t be able to prepare for a vacancy in case the tenant decides to leave.
Different Laws for Holdover Tenants
Typically, laws governing the eviction process and other disputes regarding the tenancy are different for holdover tenants.
If you let your tenants remain on the property after the lease ends and decide to evict them afterward, you need to ensure that you remain in compliance with your state and local laws.
Postponed Scheduled Maintenance
Usually, landlords schedule a move-out inspection and maintenance at the end of the lease term. If the tenant doesn’t vacate the property on schedule, you may need to postpone the planned maintenance. Some contractors may not allow this, especially if this is an indefinite reschedule.
The Property Is at Higher Risk of Damage
Because the scheduled maintenance can’t be done, your rental property is at risk of more damage.
A Rent Increase Might Not Be Possible
Some restrictions regarding holdover tenants may prevent you from raising your rent while the tenant is staying at the property.
Holdover tenants are usually problematic tenants. If you let them stay longer than they should, you’ll miss opportunities to have your property occupied by better and more responsible tenants.
How to Handle Holdover Tenants
Landlords have two options when it comes to dealing with holdover tenants:
- Let Them Stay and Pay Rent: If you continue to accept rent payments from holdover tenants, they essentially become month-to-month tenants. If they’re good tenants, you may renew their lease for another term.
- Treat Them as Illegally Staying at the Property and Evict Them: To evict holdover tenants, you need to give them a notice to vacate just as you would to month-to-month tenants. If, after the notice expires, the tenant still remains at the property, you may proceed with the eviction process.
As a rental property owner, it’s best to avoid a holdover tenancy in the first place. If the tenants want to extend their lease, they should inform you right away.
Remind the tenants that their lease is about to expire at least two to three months before the lease ends. If the tenants are responsible and you would also want to keep them, it’s recommended to convince them to renew their lease before the lease term ends.
If the tenants don’t renew the lease, make sure to send them a reminder about the move-out date and other move-out requirements. If they don’t move out, it’s best to not accept any rent payments from them.
If you accept rent, the tenancy will become a month-to-month tenancy, and it would be difficult for you to evict them due to being holdover tenants. Ask the tenants to sign a new lease, or else, do not accept any rent payment.
When your tenant remains on your property after the lease term ends, it’s important to assess your circumstances to make the right decision for your business. If you like the tenant, it’s best to negotiate with them to renew their lease.
If you’re okay with a month-to-month tenancy, you can make another rental agreement to accommodate such. However, if you dislike the tenants, it’s best to not accept any rent payment from them and proceed with the proper eviction process due to being a holdover tenant.
At Evolve Nevada, we have the experience and resources to deal with all kinds of tenancies. Contact us today to get informed on all the property management services we offer!