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The Holdover Clause
by Ron Davis

A tenant must pay a controversial penalty for operating his business at a Michigan shopping center after his lease term expired.

The shopping center, located in suburban Detroit, leased space to the tenant for the operation of an insurance agency. And the penalty results from a provision of the lease that applies to the potential for “holdover.”

That provision describes holding over as disregarding the expiration of the lease and continuing to occupy the leased premises. In such cases, the lease requires the tenant to pay 7 percent per day of the current minimum monthly rent of $1,120. At that rate, the tenant’s monthly rent would more than double.

So when the tenant’s lease term expired and he had not renewed, the shopping center’s owners expected to receive the penalty amount for days he remained on the premises. Instead, however, the tenant simply paid the minimum rent each month of $1,120, which the center’s owners accepted.

Several months later, the tenant moved from the shopping center, and a dispute arose over the amount each party owed the other. The tenant demanded that the shopping center’s owners return his security deposit. He also reasoned that because the shopping center’s owners had accepted his holdover rent at the usual rate, he was not obligated to pay any penalty. The center’s owners simply demanded that the tenant pay the holdover rent penalty for occupying the premises after his lease expired.

A Michigan court ruled in favor of the tenant, explaining that “holding over, by the terms of the lease, involves holding over by a tenant in a hostile manner, where possession of the tenant has been demanded by the landlord at the expiration of the lease. And it’s clear that did not occur in this case.”

The center’s owners appealed.

A Michigan circuit court reversed that ruling, finding that the lower court judge “essentially injected an additional term into the applicable lease provision by finding that the language of the lease involved holding over by a tenant in a hostile manner.” The circuit court added that the lease plainly reads that if the tenant holds over, he will owe a certain amount and “there is no requirement that the landlord first order the tenant to vacate the premises.”

Moreover, the judge pointed out, “The shopping center landlord did not waive its right to additional rent by accepting tenant’s rent because the right to additional rent was specifically set forth in the lease and required no action on the part of the landlord.” (Popovski v. NJ Enterprises, LLC, 2006 WL 3421793 [Mich.App.])



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