While some landlords worry about a tenant leaving before the lease ends, sometimes the opposite happens and a tenant stays after the lease expires.
Although having rental income coming in is a good thing, there may be costly drawbacks when a tenant stays but doesn’t renew their lease.
- A tenant who stays after the lease expires is referred to as a holdover tenant.
- Many residential lease agreements contain a provision that converts a long-term lease to month to month when the lease expires.
- The drawbacks to having a tenant stay after the lease expires include a lack of guaranteed rental income and loss of landlord control.
- Options to help avoid having a tenant on an expired lease include creating a rent roll and negotiating a lease renewal well in advance of the expiration date of the current lease.
Can a tenant stay after the lease expires?
A tenant can theoretically stay as long as a landlord allows them to. If a landlord continues to accept rent payments after the expiration of a lease, the tenant is known as a “holdover tenant.” There are 2 types of tenancy that may occur if a tenant stays after the lease expires:
- Tenancy at will occurs when a tenant occupies a property and continues to pay rent with the consent of the landlord but without having a formal agreement in place. Technically, a tenancy at will is not the same thing as a month-to-month lease. However, many residential leases have a provision that automatically converts an existing long-term lease to a month-to-month lease to avoid ambiguity.
- Tenancy at sufferance occurs when a tenant occupies a property without the landlord’s consent. A landlord who accepts rent but wants the tenant to leave may find it more difficult to evict the tenant at a later date.
Risks of allowing a tenant to stay on an expired lease
Allowing a tenant to stay after the lease expires may mean rental income continues to come in. However, there are potential drawbacks.
Consistent rental income is not guaranteed
When a tenant is renting on a 12-month lease, a landlord has reasonable assurance that monthly rent will be received, barring any issues with the tenant.
On the other hand, rental income from a month-to-month tenant can be less of a sure thing. In most states, either the landlord or tenant can give a 30-day notice to terminate the lease.
Some states, such as Florida, allow either the landlord or tenant to terminate a month-to-month tenancy with a 15-day notice. Washington, D.C., requires a landlord to give between 30 and 120 days of notice to terminate a month-to-month tenancy. However, if a tenant is paying the rent, a landlord must have a good reason for ending the lease.
The legal resource website Nolo.com maintains a chart of state rules on the notice required to change or terminate a month-to-month tenancy.
Reduced landlord control
Allowing a tenant to stay after the lease has expired may also result in less control for a landlord.
A tenant who knows the lease has expired but refuses to leave may be more prone to violate other lease terms and conditions, such as not taking care of the property or not paying the rent altogether. If a tenant refuses to leave and refuses to pay the rent, a landlord may have no other choice than to begin an expensive and time-consuming eviction.
Most states allow a tenant’s security deposit to be used for past-due rent and excessive damage. Still, in some cases, the deposit amount may be insufficient to cover the cost of an eviction and repairs.
Delayed maintenance and updating
Having a holdover tenant may result in a landlord losing money if scheduled maintenance or updating needs to be delayed.
Landlords typically wait until a lease expires to do updates and renovation work to avoid disturbing the current tenant. Some projects, such as replacing a roof or heating, ventilation, and air conditioning (HVAC) system, are done to maintain the property’s value and keep the home habitable, while renovating a kitchen or bathrooms may justify a higher rent increase when a new lease is signed.
A landlord with a tenant who stays after the lease expires may end up with higher repair costs down the road, such as extensive water damage caused by a delay in the roof replacement or loss of rental income that could have been earned from an updated home.
Options for removing a tenant after the lease expires
While every situation is different, there are several options a landlord may consider for removing a tenant after the lease expires:
- Allow the tenant to stay. A landlord may choose the path of least resistance by allowing a tenant to remain on a month-to-month lease and pay the rent.
- Negotiate a new lease with the tenant. In some cases, a landlord may have simply forgotten that the lease had expired. Signing a new lease will correct the situation, although a landlord rushing to renew the lease may find it more challenging to implement a rent increase.
- Offer the tenant cash for keys. A landlord may also offer a tenant who refuses to leave cash for keys as an incentive to cooperate. Cash for keys is a mutual agreement between a landlord and a tenant where the tenant agrees to vacate on a specific date in exchange for cash. While paying a tenant to leave may seem absurd, it may be a less costly alternative to a formal eviction.
- Evict the tenant. If all other options fail, a landlord may be forced to evict a tenant who stays after the lease expires. The legal process for evicting a tenant varies based on local and state-landlord tenant laws. A landlord who needs to evict a tenant may wish to consult with a real estate attorney specializing in residential evictions.
What not to do if a tenant stays
Ideally, a landlord and tenant will agree to a new long-term lease, or the tenant will vacate the property. However, there are some things a landlord can’t do if a tenant stays, even if the rent is not being paid:
- Harass or threaten a tenant.
- Shut off utilities.
- Refuse to make repairs that affect the health and safety of the tenant.
- Change the locks.
- Enter the property illegally and remove the tenant’s personal property.
- Use a rent increase as a form of retaliation for a tenant not promptly renewing the lease.
How to avoid having a tenant stay after the lease expires
There are a couple of things a landlord can do to prevent having a tenant stay on with an expired lease:
Create a tenant rent roll
A rent roll is a document that keeps track of vital tenant information for each rental property, such as rent payment history and lease beginning and ending dates.
Periodically reviewing the rent roll is a good way for a landlord to avoid forgetting to renew a lease, and Stessa makes creating a rent roll easy. After signing up for a free account with Stessa, simply enter information about each rental property and tenant, then view the rent roll for each property and portfolio.
Renew the lease early
Getting a jump start on a lease renewal is another good way to avoid ending up with a tenant on a month-to-month lease.
As a rule of thumb, a landlord can send a renewal notice to a tenant at least 60 days before the lease expiration date. A written lease renewal notifies a tenant that the current lease is coming to an end, the terms and conditions for renewal, a deadline for renewing the lease, and the potential consequences of staying after the lease expires.
If the tenant agrees to renew, a new lease can be drawn up and signed well before the expiration date of the existing lease. If the tenant indicates they will not be renewing the lease, a landlord has more time to market the property to find a new tenant and to minimize the amount of rental income lost due to vacancy.
When screening prospective tenants, a landlord should speak with an applicant’s references to learn if the applicant has ever been a holdover tenant and review the rental history report to learn if an applicant has ever been evicted.
Having a tenant who stays after the lease expires isn’t necessarily a bad thing, at least in the short term, as long as the tenant continues to pay the rent. However, it’s essential to understand the pros and cons of letting a tenant stay on a month-to-month lease while exploring different options for renewing the existing lease or removing the tenant and marketing the property for rent.