Overholding: New lease or old?

The Issue:

What happens when there is an overholding clause in a retail premises lease?

What happened?

In a recent VCAT case, a Tenant had a lease for 3 years commencing on 9 September 2000, with an option to renew for a further 6 years. At the end of the initial term, the Tenant did not renew but remained in possession on a monthly overholding. The Tenant later claimed that, because they had been in continuous possession of the property for more than 12 months without any objection from the Landlord, a new lease had been created. The Landlord claimed that the overholding clause formed part of the original lease, which had since expired.

The Tenant sought a declaration that it was entitled to a lease for 5 years commencing 9 September 2003 (i.e. the date the overholding commenced).

VCAT granted the Tenant's application on the following grounds:

1. An overholding clause in a retail premises lease creates a new periodic tenancy and does not form part of the original lease the mere presence of an overholding clause does necessarily mean that an overholding will occur.
2. Any overholding is subject to the conduct of the Landlord and Tenant at the end of the tenancy. It requires the agreement of both parties for the Tenant to continue occupation.
3. The legislation only applies if the Tenant remains in possession of the property for more than one year (in this instance, a monthly periodic tenancy for more than 12 months).
4. Because a new lease existed, under the legislation the Tenant was entitled to a five year term from the day after the expiration of the original lease.

Practical tip

If a retail premises lease contains an overholding clause, its effect will depend on the conduct of both the Landlord and the Tenant once the original lease expires. However, where a Tenant exercises an option to renew, the circumstances will be different.

If you require assistance, please contact us on 1300 205 506 or by email at sp@sharrockpitman.com.au.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.