Understanding that Texas is distinctly a landlord-friendly state is critical before signing any space. Commercial tenants must protect themselves by negotiating strict caps on operating expense escalations, notice and cure periods before lockouts, limits on personal guaranties, clearly defined repair and maintenance obligations, and reasonable subleasing and assignment rights.
Entering a commercial lease is one of the most significant financial commitments a business will make. Unlike residential rentals, which are governed by heavily regulated consumer protection laws, commercial real estate agreements are business-to-business transactions. The law generally presumes both parties are sophisticated, meaning the terms within your lease will be strictly upheld by Texas courts.
Because landlords and their attorneys frequently draft commercial leases to heavily favor the property owner, tenants who fail to negotiate risk operational and financial nightmares down the road.
Here are the top five critical issues to look out for and negotiate when securing commercial space in Texas:
- Operating Expenses & Triple Net (NNN) Charges
Many tenants focus solely on the base rent amount, only to be blindsided by massive monthly “CAM” (Common Area Maintenance) charges. In Texas, a Triple Net (NNN) lease is the industry standard for retail and office spaces. This structure requires the tenant to pay their pro-rata share of property taxes, insurance, and building maintenance in addition to the base rent.
- Watch Out For: Landlords passing through capital improvement costs (like a new roof or HVAC system replacement) as operating expenses.
- How to Negotiate: Define exactly what is included in operating expenses. Negotiate a cap on annual operating expense increases (e.g., no more than 3% to 5% per year), and explicitly exclude capital improvements and landlord administrative fees from your bill.
- The Scope and Duration of Personal Guaranties
If you are signing a lease on behalf of a Limited Liability Company (LLC) or a corporation, the landlord will often require a personal guaranty. This means if your business fails or misses rent, the landlord can come after your personal assets—including your home and personal savings.
- Watch Out For: “Good Guy” guaranties that trigger personal liability for space alterations, or a guaranty that spans the entire multi-year term of the lease even if your business is wildly successful.
- How to Negotiate: Limit the scope of the guaranty. Try to negotiate a “Good Guy” clause, which releases you from personal liability if you vacate the premises and return the space to the landlord in good condition. Additionally, negotiate a “burn-off” provision, where your personal guaranty expires after a certain number of years of timely rent payment.
- Texas “Lockout” Rights & Default Provisions
Under Texas Property Code, commercial landlords have the legal right to change the locks and deny you access to your business space if you fall behind on rent, without needing a court-ordered eviction. This is an incredibly harsh remedy that can instantly shut down operations and inventory access.
- Watch Out For: Leases that give the landlord the immediate right to lock you out or accelerate all future rent payments without any warning.
- How to Negotiate: Never accept a lease as drafted without negotiating a “notice and cure” period. Ensure the contract requires the landlord to provide written notice of default and gives you a reasonable window (e.g., 5 to 10 days) to pay the rent or remedy the issue before any lockouts can legally occur.
- Assignment and Subleasing Rights
Business conditions change rapidly. You might need to scale down your operation, sell your business, or relocate. Assignment transfers the lease entirely to another party, while subleasing allows you to rent a portion or all of your space to another business.
- Watch Out For: Broad clauses that state the landlord can deny an assignment or sublease for any reason, or clauses that charge you exorbitant fees for just reviewing a sublease request.
- How to Negotiate: Require the lease to state that the landlord’s consent will “not be unreasonably withheld, delayed, or conditioned”. You should also negotiate the right to transfer the lease to a parent company, subsidiary, or a buyer of your business assets without needing landlord approval, provided the new entity has a similar net worth and business experience.
- Maintenance and Repair Responsibilities
In commercial properties, the allocation of maintenance and repair costs can lead to intense disputes. It is vital to know exactly who is on the hook for fixing broken structural elements and major systems.
- Watch Out For: “As-is” clauses that place the total burden of maintaining, repairing, and even replacing major systems (like the roof, foundation, and HVAC) on the tenant.
- How to Negotiate: Clearly delineate these responsibilities in the lease. Generally, the landlord should be responsible for the exterior, roof, foundation, and structural components of the building. The tenant should only be responsible for the interior and routine cosmetic maintenance. If you must take over an HVAC system, try to negotiate a warranty period where the landlord ensures it is in perfect working order upon move-in, or ask for a replacement cap.
There are many other traps for the unwary lessee in the Texas commercial leasing process, such as fixture ownership, parking matters, landlord construction/renovation, equipment installation, liens, etc. Without experienced counsel to assist with negotiations chances are high that you will come to regret signing a lease, which may take a few months to work up to fairly reasonable terms. We generally don’t expect to get everything we want, but this depends on the general market, the location, and of course the specific landlord. At Belenky Law Firm, leases are a major and regular part of this practice, and we know how to focus on the most important parts and request fair accommodations, or recommend walking away, if the landlord refuses to negotiate in good faith.