When drafting or signing a commercial property purchase agreement in Texas, hidden clauses can create massive financial and legal pitfalls. Buyers and their legal counsel must be vigilant for severe “as-is” clauses lacking carve-outs, missing independent consideration, ambiguous due diligence timelines, and unverified title exceptions.
Commercial real estate transactions in Texas are largely governed by the principle of caveat emptor—”let the buyer beware.” Because Texas law highly favors the freedom of contract, a poorly drafted purchase and sale agreement (PSA) can strip away buyer protections and stick you with costly, unforeseen liabilities.
Whether you are an investor, developer, or business owner, spotting these five critical red flags in your Texas commercial property agreement can save your deal and your bottom line.
- Vague or Missing “Independent Consideration”
In Texas, a purchase contract often grants the buyer a “free look” or due diligence period to inspect the property and terminate the contract if necessary. However, for an option contract to be legally binding and non-revocable by the seller during this period, Texas courts require independent consideration.
- The Red Flag: If the contract lists the option fee as “$0” or fails to clearly stipulate that a small portion of the earnest money (e.g., $100) is strictly non-refundable consideration for the inspection period, the seller may legally revoke the contract and sell to someone else at any time.
- Broad “As-Is” Clauses Without Proper Carve-Outs
In the commercial market, sellers almost always want to sell property strictly “as-is”. In Texas, an enforceable “as-is” clause generally bars a buyer from bringing fraud or negligence claims against a seller for hidden defects.
- The Red Flag: Watch out for “as-is” language that explicitly waives the buyer’s right to rely on seller disclosures or actively prevents the buyer from conducting a physical inspection. A robust PSA must include a carefully negotiated “access and inspection” clause, allowing you to walk away and recoup your earnest money if you discover major structural or environmental issues during your investigation period.
- Ambiguous Due Diligence & Feasibility Deadlines
Time is of the essence in commercial real estate. The due diligence period is your window to secure surveys, phase-out environmental assessments (e.g., Phase I/II ESAs), and evaluate zoning compliance.
- The Red Flag: Watch for convoluted or vaguely defined deadlines. A single missed date to terminate the contract can result in your earnest money deposit “going hard” (becoming strictly non-refundable) before you are ready to commit. Always verify that contingency deadlines, extension conditions, and cure periods are precisely dated.
- Boilerplate “Seller Representations and Warranties”
Representations and warranties are statements of fact made by the seller about the property’s condition, such as zoning compliance, pending litigation, or ongoing tenant leases. Sellers will attempt to minimize these, while buyers need them to ensure they aren’t buying a lawsuit.
- The Red Flag: A contract where the seller makes zero representations, or where the representations are limited “to the actual knowledge of the Seller” without any duty to investigate, is highly risky. Furthermore, watch for short survival periods—if the seller’s liability for a misrepresentation expires a mere 30 days after closing, you will be left with zero legal recourse for any undisclosed issues you uncover later.
- Hidden Title and Survey Exceptions
A thorough title commitment and survey are cornerstones of commercial due diligence in Texas. They reveal easements, boundary disputes, encumbrances, and unpaid liens that could severely impact your ability to use or develop the property.
- The Red Flag: Standard contracts allow the seller to provide a list of “Permitted Exceptions” to title. Watch out if the seller includes broad, blanket exceptions (e.g., “all matters of record”) rather than specific, manageable recorded documents. You must carefully negotiate an objection period that requires the seller to cure specific monetary or survey defects before the closing date.
Protect Your Texas Commercial Investment
While the Texas market is ripe with opportunity, it is heavily structured to protect sophisticated parties who define their terms clearly. Boilerplate agreements or forms that fail to account for local Texas customs, such as statutory utility districts or mineral rights, are common sources of disputes.
Before signing any commercial property agreement, it is highly recommended to consult with an experienced real estate attorney who can review the contract line-by-line and negotiate favorable protections on your behalf.