Texas Commercial Leases: What Business Owners Should Know

July 03, 2018

texas-commercial-leases

Demand for commercial lease space in Texas continues to be strong. According to Commercial Loan Solutions:

  • In Austin, developers are doing their best to keep with demand from growing and relocating tenants. The office market continues to attract investors as vacancy remains tight and rents rise.
  • In Dallas – Fort Worth office space is in continuous demand. Until recently, rental rates have been rising faster than the annual rent escalations found in most commercial leases.

On March 1, 2018, Bisnow Houston reported that Texas leads the nation in commercial real estate development for warehouse/flex, including e-commerce distribution, fulfillment facilities and retail real estate. It ranks second only to California in office development.

While it may be challenging to find the right office lease, make sure the lease terms fit your business’s needs, both now and in the future.

Some typical issues business owners face include:

  • Not being able to make improvements or alterations to the lease premises without the landlord’s approval.
  • Having to restore the premises to their original state upon termination of lease.
  • Not being able to assign the current lease to a buyer when selling a business.
  • Continuing liability on the lease after selling a business.
  • Being responsible for major repairs.
  • Inadequate parking.
  • Disruptive noise or odors from adjacent tenants.
  • Restrictions on the design of business’s signs and location of these signs.

It is difficult to predict whether your landlord will be willing to negotiate on any of these issues, but it is critical you understand your obligations under your lease.

Here are several important issues you should consider before you sign a lease.

Parties

It may seem obvious, but who is signing the lease? Be sure the lease is in your business entity name, not your personal name.

Rent

How much is the rent? How is it calculated? How are rent increases handled? How much is the security deposit and when will it be returned?

Other costs

What additional costs do you need to pay, such as insurance, property taxes, maintenance, utilities and common area costs?

Term

What is the lease term? When does the lease start and end? Can you renew the lease? Will you have the option to expand your space? Can you terminate the lease?

Operating hours

Are there requirements that your business is open certain days and for certain times?

Improvements

Will you need to make modifications to the physical space? If so will you be able to make these changes? What are the build out requirements and specifications? What fixtures do you need? Who pays for these items and who owns them after the lease ends?

Signs

What are the specifications for any signs? Where can you put signs?

Parking

Is there adequate parking for your business? Are there designated spaces?

Repairs and maintenance

Who is responsible for maintaining and repairing the premises, including the heating and air conditioning systems? Are there any manufacturer’s warranties that will be passed on to you? How old is the equipment?

Right to quiet enjoyment

What happens if there are issues with odors, noises or other reasons why your quiet enjoyment of the premises is disrupted?

Assignment and subleases

What happens if you outgrow your current space or you go out of business? Can you assign or sublease to another tenant? Will changes in your business entity ownership trigger an assignment? If you sell your business, what are the fees for transferring the lease to the buyer? If you are selling your business and these provisions are not spelled out, the landlord may seize this opportunity to re-negotiate rent with your buyer. If an assignment is approved, will you still be liable on the remainder of the lease term?

Termination

How can the lease be terminated? What are the notice requirements? Are there penalties for early termination?

Landlord Subordinate Security Interest

Normally landlords require you grant them a security interest in your business’s assets to ensure payment of rent. Will the landlord subordinate these rights in the event you need to get financing?

Insurance

What types and amounts of insurance are you required to carry?

Exclusive use

Does the lease prohibit the landlord from renting space in the same complex to your competitors?

Personal guarantees

Most commercial leases require the business owners be personally liable for the tenant’s obligations.

Business owners should consult with their legal advisers for interpretation of specific requirements concerning their business leases. For more information on business legal matters, please contact Kathy Tremmel at Tremmel Law, PLLC at (512) 539-0317 or kathy@tremmellaw.com.

Kathy Tremmel

Tremmel Law

Kathy Tremmel has significant experience both as a business attorney and corporate executive. Her career spans both legal practice and business management and she opened her own solo law practice in January 2010. In additional to running her own practice, she also is of Counsel with Selman, Munser & Lerner, which is a business transaction law firm in Austin, Texas. Ms. Tremmel has more than 10 years’ experience as a business attorney, providing transactional legal services to a diverse client base, from start-up ventures to well established companies. She helps companies with all their contracts, including customer agreements, non-compete agreements, employment agreements, buy-sell agreements, loans, and leases, helps people set up new businesses, and represents buyers and sellers of businesses. In addition, Ms. Tremmel has 10 years of management experience working with start-up companies. As VP of Operations at Tusker Group, an international litigation support company, Ms. Tremmel led international teams, managed production and quality issues, handled price negotiations, worked closely with clients to determine the scope of their projects, provided project management services, and developed, implemented and documented best practices for processing and training. Ms. Tremmel earned a Doctor of Jurisprudence from the University of Colorado School of Law and a Bachelor of Arts from Dartmouth College. She is a Texas licensed attorney and a certified Project Management Professional.
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