Holdover Rent or Illegal Penalty? California Appellate Court Sides with Commercial Landlord
Updated: Jan 23, 2021
Court upholds enforceability of holdover rent provisions in commercial leases.
In Constellation-F, LLC v. World Trading 23, Inc., (2020) 45 Cal.App.5th 22, the California Court of Appeal, Second Appellate District, upheld a holdover rent provision in a commercial lease. The Court found that the holdover provision calling for a 150% rent increase was a “graduated rental” and, absent coercion, was enforceable. In doing so, the Court rejected Tenant’s claim that the holdover rent was an illegal penalty under California Civil Code Section 1671. The Constellation-F, LLC case provides new guidance regarding the enforceability of holdover rent provisions in commercial leases. Commercial landlords and tenants should pay close attention to it in drafting holdover provisions, or in prosecuting or defending holdover rent claims.
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