What to Do If a Holdover Tenant Pays Rent

The termination of a lease, whether residential or commercial, is rife with pitfalls for a landlord. One mistake that is easy for landlords to avoid is, following the termination of a lease, to not accept rent.

First enacted in 1872, Civil Code Section 1945 sets forth that where a lessee remains in possession of real property after the termination of the lease, but the lessor accepts rent from the lessee after the termination, there is a rebuttable presumption that the lease has been renewed on the same terms as before.

Acceptance of Rent Renews the Lease Even if the Landlord Does Not Intend It

Recently, in a case titled Baca v. Kuang, a commercial landlord tried to overcome this rebuttable presumption by arguing that, despite the fact she had accepted rent after the termination of the lease, she did not intend to consent to a renewed tenancy and so the lease had not been renewed. Specifically, the landlord argued that although she intentionally kept the rental payments, she believed that she could do so without the tenancy renewing.

The trial court agreed and awarded the landlord possession, along with attorneys’ fees and holdover penalties totaling over $79,000.00. In making its decision, the trial court said, the landlord “never consented” to the tenant’s “continued possession,” and that the “‘rent’ payments were required under the lease in the event of a holdover after termination of the tenancy.”

The First District, however, disagreed noting that “[u]nder the plain language of section 1945” the issue is whether the landlord accepted rent, not whether the landlord “subjectively intended to create a holdover tenancy.” In fact, the Court found that the landlord’s “subjective intent” had “no bearing” on the interpretation of Section 1945. The landlord made other arguments that were specific to their lease with the tenant, but the Court brushed them all aside.

Importantly, as highlighted in Baca v. Kuang, if rent is accepted after the lease’s termination, it should be refunded immediately – the Court also distinguished that case from Kaufman v. Goldman, where the tenant kept submitting rent checks after the termination of the lease, but all of which were returned un-cashed, with the exception of one check that was mistakenly deposited and immediately refunded.

The lesson here for landlords is clear: Do not accept rent after the termination of the lease. It does not matter whether you think you are permitted to do so under your lease or the law, or whether you think the rent payments are a credit for holdover damages. If you accept rent after the lease’s termination, you run the risk a Court will find the lease has been renewed. If your tenant attempts to pay rent, do not cash it. Return it immediately.

Are You Dealing with a Holdover Tenant? Call us.

A holdover tenant attempting to pay rent is not a landlord’s only concern. Managing the eviction of a holdover tenant is complicated. For assistance with issues related to a holdover tenant, you may contact Thomas J. O’Brien at Zacks & Freedman, PC for guidance. Contact us at your convenience to request a consultation.

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