Overholding Clause… What’s an Overholding Clause?

by Steve DeVoe
July 19, 2018

In my 35 years of experience in commercial leasing, I have heard this very question more than a few times. Or another common version is “What do you mean I can’t stay beyond my lease expiry, I have an overholding clause?”

I just finished up a lengthy negotiation (really an ordeal) with a client and friend vs his landlord. He is a business owner and entrepreneur, and like most entrepreneurs he likes to do things himself. I remember at the time he was leasing his new premises, I offered assistance with his lease but he thought it was pretty straight forward and could handle it on his own.

I’ll admit, despite our friendship I couldn’t help smirk a little when I got an emergency call about him being locked out of his office.

A long story with an issue that could have been easily avoided, but nevertheless a good reason to pen the following article.

As a proud business owner who may have negotiated their own commercial lease you might be saying “Yeah overholding clause, I seem to remember that, I’m sure I have one in my lease…,” or more likely you’re saying “what’s an overholding clause?”

In a more problematic scenario you might be saying “my lease is expiring and I’m not ready to leave but I’m not worried I have an overholding clause”

In any of these cases beware!

An overholding clause is NOT an unfettered right to stay in your leased premises, on ad infinitum after your lease expires!

The fact is, according to a 2012 decision issued by the Ontario Court of Appeal, AIM Healthgroup Inc v 40 Finchgate Limited Partnership,[1] you have no right to remain on the premises without the consent of your landlord.

A typical overholding clause states that when the term of a commercial lease expires and the tenant continues to occupy the leased premises, the tenancy becomes month-to-month (virtually all at a new and significantly higher rate for the overhold period).  So to be clear, when a tenant remains in possession of the leased premises after the lease term has expired, or holds over, the tenancy continues on a monthly basis.

Here is the key point; the tenant can only remain if he has the consent of the landlord!

“Well”, I can hear you saying “my clause doesn’t say that, in fact it doesn’t even mention consent.”

The answer is… it doesn’t matter. The courts have ruled the following:

In order for the overholding clause to apply and the tenancy to continue month-to-month, consent of the landlord must have been granted – even where that language is not expressly included in the clause. Consent can be either explicit (i.e. in writing) or implied (i.e. the acceptance of rent).

A bit confusing, perhaps but here is what you need to know:

  • You should insure your lease has an overholding clause.
  • An overholding clause states that a tenant may occupy the premises on a month-to-month basis once their commercial lease has expired.
  • Case law has confirmed that landlord’s consent must be granted for a tenant to continue to occupy the premises on a month-to-month basis.
  • Tenants should ensure that their landlord agrees to the tenant occupying premises on a month-to-month basis.
  • Do not think or count on the ability to overhold beyond your lease expiry simply because you have this clause.
  • Be prepared and proactive should you see the potential need to remain beyond your lease expiry.
  • Be prepared to pay extra for this right.

So, the moral of the story for business owners or lessees in general, if you’re not renewing, be cautious about relying too heavily on the overholding clause in your lease. If you do not have the landlords consent you need to be out of there or you could suffer the consequences.

Sign Up for our Newsletters

Be the first to receive commercial real estate updates, articles and videos.

We respect your privacy. Your information will not be shared with any third party.

Leave a Reply

Your email address will not be published. Required fields are marked *