A Commercial Lease At The End Of The Term Becomes A Month to Month Lease Unless A New Lease Is Signed

By Johnathan Mehl, Esq.

I have often been asked: what are the rights of a landlord and a tenant when a lease expires?  People often say that there is no lease. However, this is not the case.  The provisions of the last written lease control, and the tenancy is what is known as a holdover tenancy.  The question is whether after the expiration of a lease which has a term of years, does the holdover tenant become a month-to-month tenant, or is the holdover term for another year?
That question was recently resolved by the New Jersey Court in the case of Jacob Zlotkin v. Leora Dubrovsky Realty Group LLC, decided in September 2016.  A one year commercial lease was entered in May 2012 with an option to extend the lease on a year-to-year basis for an additional five years.  The lease called for the rent in the renewal term to be negotiated.  Yet, it was not.  The tenant remained in the premises after the expiration of the term and for several months paid the rent which had been paid per the May 2012 lease.  The landlord then terminated the tenancy.
The landlord filed an eviction case, and as a result of the trial was granted possession of the premises.  The tenant appealed, arguing that since the lease was a year-to-year lease, the termination notice was not timely and the term should be extended for another year once the lease expired.  The tenant also argued that three months’ notice should have then been provided in order to properly terminate the tenancy.  Pursuant to applicable statute, N.J.S.A. 2A:18-56(a) and (b), a year-to-year tenant must be given a three month notice to quit, while a month-to-month tenant need only provided a one month notice.
The Court ultimately rejected the tenant’s arguments and ruled that at the end of the term, a month-to-month tenancy was created which could be terminated on one month’s notice to the tenant.  Note that the time frames require full calendar months’ notice.  For example, if a notice is served on the 17th day of the month, the termination date should be on the final day of the next month, not the 16th day of the next month.  Therefore, as a landlord, be careful to include the appropriate termination date, and do not file a complaint for possession until that date has passed.  A court at times may extend the termination date to the end of the calendar month, and permit the possession action to go forward; provided, however, that the possession complaint was not filed until after the end of the subsequent month.  If the complaint was filed prematurely, the case may be dismissed, and the landlord may need to re-file.
With a commercial lease, a landlord really needs to check the lease to see if the time frames have been changed. That is because a commercial lease may shorten the time frames for notices. For example, the lease may say that a tenancy may be terminated on ten days’ notice.  If the lease says something to this effect, there is no requirement to provide a full calendar months’ notice.
From a practical matter, a landlord may not want the tenant to vacate at the end of the term.  Therefore, it is important to try to fully a lease renewal and have it signed prior to the end of the lease term.  New Jersey is also very strict in interpreting options to renew.  If a tenant does not timely exercise the option to renew, the lease will terminate.  Also, it is generally a good idea to have the option term rental amount set in the lease.  Alternatively, a percentage increase, using a formula such as the Consumer Price Index, or a hybrid of the two is suggested.
Most commercial leases drafted on behalf of a landlord also have a provision stating that if the tenant holds over at the end of the term, that the monthly fee to be paid equivalent to one and one-half or two times that of the last rent paid. This serves as an incentive to the tenant to either negotiate a renewal lease.  At the same time, the landlord reserves all rights to pursue eviction and that this does not create a new tenancy.  The lease in the case that went to court must not have had such a clause.
A commercial lease should also include a clause that the tenant will provide a certain lengthy notice period to the landlord if the tenant is going to exercise an option to renew (such as three or six months). This way if the tenant does not exercise the option, the landlord can have plenty of time to seek a new tenant.  It can often take several months to find a new commercial tenant.
Therefore, especially with a commercial lease, it is important to have an experienced attorney draft and review a lease in order to adequately protect the interests of the landlord.
Jonathan R, Mehl, Esq. is recognized in the community as an ethical and highly skilled attorney, who is dedicated in effectively getting to the bottom line in achieving the client’s goals. Jonathan R. Mehl graduated Seton Hall University School of Law, Newark, New Jersey, in 1991. He earned his undergraduate degree from The George Washington University, Washington, D.C., in 1987. Jonathan R. Mehl is admitted to practice law in New Jersey, New York, and the District of Columbia. He has served on a New Jersey District Legal Ethics Committee, and the New Jersey Supreme Court Rules Committee for the Special Civil Part.Since 1996 Jonathan R. Mehl, P.C. has maintained the law firm in Rutherford, New Jersey. He can be reached at (201) 804-0040 or via email at Jonathan@mehllegal.com.