Experienced landlords are familiar with the risks associated with a holdover tenant that does not leave the premises at the end of the lease. A holdover can prevent a new tenant from moving into the premises as scheduled and creates uncertainty as to when the holdover tenant will vacate. To minimize these risks, a landlord will often include a holdover provision in the lease to require the tenant to pay an increased amount of rent if the tenant holds over. However, if a landlord is leasing space to a government agency, or other government entity, it is common for the government agency to not include a holdover provision in its standard lease form. Government agencies can be slow in finding a new space that is suitable for the agency’s needs, especially if the agency requires above-standard security systems or an unusual layout for its space. Government tenants pose just as much, if not more, of a risk of holding over as any other tenant. However, a landlord does not have the same options in addressing a government tenant holdover as it does for any other tenant holdover.
While a landlord cannot seek to evict a federal government tenant holdover, it can get monetary damages for the holdover. The most common, and most efficient, way to resolve a federal government holdover issue is to bring a claim to the government tenant’s contracting officer, and then to the government agency’s hearing board. Even if the lease does not have an express holdover provision, every federal government lease carries an implied duty to vacate. The federal government tenant has the duty to vacate the leased space at the end of the lease, whether or not the lease has language about the duty. The contracting officer and the hearing board will recognize this duty.
Even though federal government tenants have a duty to vacate at the end of a lease, landlords cannot bring eviction proceedings against federal government tenants. A contracting officer or government hearing board will only grant a landlord monetary damages if a government tenant holds over. If fair-market rent is greater than the rent the landlord was charging the government tenant at the end of the term, the landlord should ask for damages in the amount of fair-market rent for the time period that the federal government tenant remained in the space. The contracting officer or hearing board will recognize fair-market rent as acceptable damages.
Additionally, if the landlord had another tenant that was supposed to take over the leased space after the government tenant, and that new tenant was not able to move in due to the federal government tenant’s holdover, the landlord can ask for any additional monetary damages it can show that it incurred due to the delay in the new tenant getting in the space. For example, a landlord could request additional monetary damages if it loses its new tenant because of the government tenant’s holdover, or if it had to pay any fee to its new tenant for the delay in delivering the space to the new tenant.
State government tenants do not always have the same duty to vacate as federal government tenants do, and different states have different methods of addressing government tenant holdovers. For example, New Jersey courts resolve the issue in a similar way as the federal government does and have awarded landlords damages for fair-market rent for the leased space in the event of a state government tenant holdover. See Borough of Fort Lee v. Banque Nat. de Paris, 710 A.2d 1 (N.J. App. Div. 1998). In contrast, Pennsylvania addresses state government tenant holdovers preemptively and includes a holdover provision in its Department of General Services standard lease form for state agency offices, state liquor stores and warehousing.
When dealing with a federal government tenant or a state government tenant that does not have a holdover provision in its lease, there are some preemptive steps that landlords can take to decrease the chances that a government tenant will holdover at the end of its lease. Landlords should send a written notice to government tenants either 90 or 60 days before the expiration of the lease, and the notice should include the following information:
- the date the lease expires
- a statement that, if the government tenant continues to occupy the leased space after the expiration of the lease, it must pay fair-market rent
- the amount that the landlord determines fair-market rent to be
- a statement that a new tenant will be moving into the space after the expiration of the government tenant’s lease (if there is a new tenant moving in)
- a statement of any damages that the landlord would expect to incur if the new tenant is not able to move in on time.
These statements would put a government tenant on notice of how much it may have to pay if it does not leave the space at the end of the lease, which would encourage the tenant to actually vacate the space at the expiration of the lease. The notice would also be useful evidence to present to a contracting officer or hearing board in the event that the federal government tenant does not leave the premises at the end of the lease.