What Happens at the End of the Lease Term: Planning Considerations

By: Kevin M. McCrary

For those who let (or rent) property for office space, when was the last time you reviewed your lease?

Several times during the year, I get a call from a prospective client about some provision in his or her lease affecting the end of the lease term that has caused or will cause some consternation. The lease had an option to renew, but the tenant missed the notification date; the lease term has expired, but the tenant is still in the space (holding over) and the landlord is now seeking 150% of the previous month’s rent, etc. While considerable negotiation may have gone into the drafting of the lease, no one has touched it or looked at it since the ink dried on the paper.

Like any contract, a lease has a lifespan; and the life of a lease extends past the date of its execution. During the course of running any business, the decision makers must always have their focus on several overall considerations: are we profitable, does it make sense to keep our doors open, what is our purpose? Regarding leases, those considerations look more like this:

  • Am I happy with the tenant/landlord?
  • Have comparable rental rates in my geographic location increased or decreased?
  • Would our customers/clients be better served if we were located in a different area?

Regarding your existing lease, you should always know what happens at the end of the primary lease term. Do I have an option to renew? For how long? At what rate? When must I notify the landlord that I want to renew? Does the rental rate increase? If so, how much? If the lease doesn’t provide for the continued holdover of the tenant, what happens?

In the absence of a contrary provision, Louisiana law provides that a lease terminates upon the expiration of the term, without need of notice, unless the lease is “reconducted.” Reconduction is a legal process by which the term of the lease expires, but the tenant is allowed to stay in the space without being forced to leave. The duration a tenant stays before reconduction occurs differs depending on the type of lease (agricultural or nonagricultural) and the duration of the original lease. For a typical commercial office lease, the duration of holdover is one week. While reconduction is nothing to be scared of (for it simply continues the life of the lease under the same terms), there are considerations the parties should be aware of it if they find themselves in this type of situation. If you’re a landlord, you may want to receive a higher rent (from a different tenant) and therefore desire to avoid having to deal with a tenant any longer than necessary. If you’re a tenant, reconduction likely opens you up to the being a month-to-month tenant and therefore subject to being told to vacate with as little as ten (10) days’ notice.

In conclusion, a lease has an end, just as it had a beginning. One should be aware of when and how the lease ends and what, if anything, needs to be done to end or extend the lease.