Article Summary
When a commercial lease expires but the tenant remains in occupation, the legal position is not always clear-cut. Depending on the lease terms and the conduct of the parties, the arrangement may continue as a holding over tenancy, transition into a periodic tenancy, or require formal steps to end or extend the agreement. This article outlines the key options available to landlords, including negotiating a new lease, issuing notice to vacate, and navigating additional obligations for retail shop leases.
It is not uncommon for a lease to quietly expire without the landlord and tenant having discussed what happens next. Sometimes the tenant simply continues operating from the premises as if nothing has changed.
When that happens, the legal position will depend on the terms of the lease and the conduct of the parties. This alert outlines the main options available to a landlord when a tenant remains in occupation after the lease has expired.
Option 1 – Holding over
Most commercial leases contain a “holding over” clause. This clause states that if the tenant continues to occupy the premises after the expiry of the lease with the consent of the landlord, the tenant will do so on a month to month basis, on the same terms as the lease, so far as they apply to a month to month tenancy. In that case, the tenant is obliged to continue paying the rent each month, until such time as either party gives a month’s notice to the other, to bring the month to month tenancy to an end.
The make good clauses in the lease will apply at the end of the month to month tenancy.
Even if the lease does not contain a holding over clause, if the tenant remains in occupation of the premises with the landlord’s consent and continues to pay the rent on a periodic basis, the lease will transition to a periodic tenancy. The “period” of each tenancy will correspond with how rent is paid (for example weekly or monthly).
Option 2 – Negotiate an extension
It’s possible that the tenant may wish to remain in the premises for an extended period. In that case, the parties could negotiate an extension of the lease on the same terms as the expired lease, but with updated rent and an updated term. The extension can be documented by either entering into a new lease, or amending the existing lease using a deed of extension and variation.
However, if the lease is registered on title and has no options to renew, an amendment won’t be able to be lodged on the title to record an extension of the lease after the expiry of the term. If either party requires the tenant’s interest in the premises for the extended term to be registered on title, a new lease will need to be prepared and entered into.
Option 3 – Require the tenant to vacate
If the landlord requires the tenant to leave the premises, the landlord can give the tenant a notice terminating any holding over period or periodic tenancy that may have come into existence after the expiry of the term. That notice will need to be given in accordance with the Property Law Act 2023 and in accordance with the notice provisions in the lease.
The tenant will then be required to vacate the premises and comply with its obligations under the lease regarding make good (if any) by the expiry of the notice period.
Option 4 – If the tenant has already vacated
If the landlord reasonably believes that the tenant has already vacated the premises, there is no need to give a notice terminating the lease, the landlord can simply re-enter the premises.
A warning for Retail Shop Leases
BEWARE if your lease is a retail shop lease! The Retail Shop Leases Act requires landlords to give a written notice to tenants a particular time before the expiry date of the lease, either offering the tenant a renewal or extension of the lease, or telling the tenant that the landlord does not intend to offer a renewal or extension of the lease.
If the landlord does not give such a notice, on request by the tenant, the term of the lease will be extended to the date that is 6 months after the landlord eventually gives the required notice.
Practical steps for landlords
If a lease has expired and the tenant is still in occupation, landlords should consider:
- whether the tenant is occupying under a holding over arrangement;
- whether a new lease or extension should be negotiated;
- whether notice should be given to end the tenancy; and
- whether the lease is a retail shop lease with additional statutory requirements.
Early advice can help avoid disputes and ensure the landlord’s position is protected.
If you are dealing with a lease that has expired, or are unsure whether a tenant is holding over, our Property + Business Transactions team can help you understand your position and the options available.
For further information on this alert, contact Director Carly Brailak.
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