Daily Development for
Friday, November 3, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

LANDLORD/TENANT; HOLDOVER RENT: When holdover tenant remains in possession of leased premises after expiration of term, but landlord fails to provide reasonable notice of rent increase before such expiration, tenant is liable for the fair market rental value of the leased premises for the time following the expiration of the holdover term. AHCI, Inc. v. Lamar Advertising, 898 S.W.2d 191 (Tenn. 1995). The lease was for billboard space, with rent payable annually. It originally had a one year term, and the lease provided that it renewed on the same terms each year fter expiration of holdover term, upon landlord's acceptance of a check for the new rent. A new owner acquired the landlord's estate, and, when the tenant sent in the check for the annual rent (after the expiration of the prior year's term) the new owner refused to accept the check and responded with a letter demanding substantially more rent, payable monthly. Negotiations ensued for more than two years. Ultimately, negotiations failed, and the landlord demanded the tenant quit the premises and pay the rent at the landlord's new figure for the period of occupancy since expiration of the preceding term.

Tenant quit the property, but took the position that the landlord's rent demand did not set the terms of its occupancy since expiration of the original term. Rather, the tenant owed only the fair rental value under Tennessee law.

Held: Landlord's demand for a higher rent after expiration of the original term and during the holdover period was not effective to established new lease terms. Tenant owed only fair rental value for the period..

The opinion distinguished this holding from the well-established rule that a tenant who remains in possession after receiving reasonable notice of rental increase is deemed to have acquiesced to the terms of such notice. Here, it viewed the landlord's rent demand as only an invitation for negotiations.

The landlord, apparently, could have made its position clear that continued occupation was tantamount to acquiesence in the new rental, but the court did not view its demand as doing this. It noted that the lease was for billboard space along a statutorily-declared "scenic highway," meaning that if the billboards were removed, they could never be replaced, thereby forever denying landlord of the rents. The parties, therefore, might well have viewed continued occupation by the tenant as desireable. Therefore, the tenant's continued occupancy during negotiations did not, ipso facto, constitute an acquiescence in the landlord's rental increase demand

Note, however, that the landlord followed up on its original rent setting by sending several invoices demanding payment of rent at the landlord's new rate.

Comment: The case makes some sense based upon the special facts here. But it does place an additional burden on landlords to make crystal clear the fact that the new rent demand will be binding if the tenant remains in possession. One would think that the landlord's several invoices demanding payment of the rent at the demanded rate would have put the tenant on notice that the landlord was serious.

It is not clear whether the fact that the landlord's notice for the new rent came after the end of the prior term, rather than before, made a critical difference. The tenant tried to distinguish on that ground earlier cases favoring the landlord. The court seems to reject this distinction, and rely instead on the overall negotiating interest to conclude that the landlord had not in fact demanded that the tenant be liable for the new rent or quit.

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