Tenants sometimes fail to move out after the lease expires and stay at the property. Tenants who stay past their lease term without your (the landlord’s) express permission are considered holdover tenants. If you’ve signed a lease with another tenant, plan to sell the rental property, or move back in, then this could be a big issue. The only way to get rid of a holdover tenant legally is through an eviction which can take time and cost money. 

What can you do when a tenant stays after the initial lease term expires? Some landlords will offer tenants money to move or some other compensation since the costs involved with evicting them, losing the tenants you’ve signed a new lease with, or missing putting the property on the market during the busy season, can cost landlords a lot of money and often more than the compensation offered to the tenants to move out. This isn’t the most popular solution since you’re rewarding the tenants for doing something wrong but many times it makes financial sense.

Some landlords will offer tenants money to move or some other compensation since the costs involved with evicting them, losing the tenants you’ve signed a new lease with, or missing putting the property on the market during the busy season, can cost landlords a lot of money and often more than the compensation offered to the tenants to move out. This isn’t the most popular solution since you’re rewarding the tenants for doing something wrong but many times it makes financial sense.

• Get everything in writing! If you and the tenant come to an agreement, then make sure you get it in writing. An addendum to the lease with your and the tenants’ signature makes it clear what you both agreed to and when. If you come to an agreement in person, on the phone, or through messaging, make sure you follow it up with the addendum.
• Do not accept rent! Once you accept rent from a holdover tenant, that action creates a periodic tenancy with the tenants, and they are no longer staying without your permission and considered holdover tenants.
• The amount of notice you need to give may change. In a periodic tenancy, you need to give tenants notice to vacate for at least the amount of time that the periodic tenancy is for. For example, if the tenant pays weekly, then you need to give the tenant at least a weeks’ notice for them to move. In some states, if the tenant has lived at the property for a certain length of time, then it could be more.
• Communicate! This can be difficult since tenants who are behind on rent, are unwilling to move, or still trying to decide what they’re doing, may try to avoid your calls and e-mails. When this happens, the only thing you can do legally is start the eviction process. 
• Do not randomly show up at the property or try other tactics like shutting off utilities or threatening the tenant to get a response. Some tactics landlords use are illegal, which gives tenants ammunition in court allowing them to stay longer. In the worst-case scenario, it can be dangerous if your tenants are going through a difficult time and have domestic or mental health issues. While your rental property might be one of your biggest financial assets, it’s not worth your health or life. 

How to avoid a holdover tenant situation
Market your rent at a reasonable price and get qualified tenants. Tenants who have good credit and landlord references are less likely to end up in a holdover tenancy situation and abide by the terms of the legal contracts they sign. When you list your property for above market rent, there are typically less showings and applications, and you may be tempted to accept tenants who are borderline or below your normal qualifying standards. Tenants who don’t have good credit or have poor landlord references are more likely to end up as holdover tenants.

Be financially prepared
We recommend that you have at least six months of reserves so that the situation isn’t more stressful with you worrying about paying the mortgage on time and keeping your property. Even with the most qualified tenants, things can happen. If they lose their jobs, finding a new rental can be difficult and staying at yours until you go through the eviction process might be their best option.

Be familiar with your lease
What is the holdover penalty stated in your lease? Do you have one? Some leases have a harsh penalty which can make being a holdover tenant something tenants really want to avoid. Tenants are more likely to stay longer if there’s no penalty or it’s not bad like just paying prorated rent for the days they overstay. 

For example, some leases will automatically charge tenants a month’s rent times two! That will make most tenants think twice before overstaying, especially if it’s just a few days since it’s much cheaper for them to rent a hotel and pay to store their belongings than pay a penalty equal to two months’ rent.

These tips should help you avoid this situation or be more prepared if you have holdover tenants at your rental property. Give us a call if we can help with leasing or managing your investment property.