Are Holdover Tenants a Good Thing?

 pros-and-consTenant retention is a good thing. Or is it?

Most landlords would agree that the longer a tenant stays, the lower the rental costs. After all, there is no need to advertise to attract a new tenant, and no downtime while the property is vacant. Cash flow continues uninterrupted, and the landlord has the peace of mind that comes with a known commodity.

But holdover tenants — those who stay on after the original lease term expires — also present some disadvantages for landlords:

Holding over on a lease creates a special legal limbo. If the landlord doesn’t file for an eviction, in most cases, the lease reverts to a month-to-month. In a few states, the lease automatically renews for another year. Either way, all the terms remain the same as the original lease.

Should the lease continue as a holdover tenancy, in most cases, the rent is frozen in time. The landlord has lost the opportunity to renegotiate the lease terms, like adding a smoke-free addendum.

Another difficulty: the property may be damaged, and the landlord is not aware because they did not do an end-of-lease inspection. Neglected repairs can add up to major losses.

The tenant will be able to give notice to end the term of a month-to-month lease whenever it’s convenient for them.

Finally, any miscommunication regarding the lease end date can result in the landlord lining up a new tenant while the current tenant is planning on staying put.

Whether a holdover tenancy can work for you depends on the tenant, and how difficult it is for you to find new ones.

Of course, the ideal situation is to make money regardless of whether a tenant is a holdover. That requires choosing the very best tenants to start with. Tenant screening, along with making the property attractive to the best tenants, can keep your profits healthy.

What’s your policy on holdover tenants?

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