The Texas commercial lease agreement designates the rights and responsibilities of each party entering into a rental contract for commercial space. This document establishes the relationship between a landlord and a business entity. It is often longer than a standard residential lease.
A lease for commercial property can have devastating financial consequences on both parties. As such, it is normally something that is poured over very carefully, and may even be reviewed by either side’s attorney.
Section 93 of the Texas Property Code covers the rental of commercial property. This section does not specifically name any disclosures that must be given when renting such property. However, there are a few you may want to include anyway, such as the following:
Arbitration of Disputes
The Texas General Arbitration Act makes it possible for many civil complaints to be settled through arbitration. In fact, commercial property disputes are often handled in this manner. If you mention arbitration anywhere in your lease, you should also include an Arbitration of Disputes disclosure. When signed by both parties this form will mandate arbitration, with the results being binding on everyone.
Texas counties having a population of more than 150,000 are required to conduct what are known as “settlement weeks.” Settlement weeks are held twice each year, and are used to resolve arbitration backlogs. If you live in a county of more than 150,000 people, you may want to mention the possibility of having your case resolved during a settlement week. Do not promise that the matter will be resolved during a settlement week, only that the tenant may need to attend one.
Lead-Based Paint Disclosure
When renting a commercial building built before 1973, the Environmental Protection Agency (EPA) requires property owners to provide a Lead Based Disclosure Form. This form is provided by the EPA on their official website and cannot be altered. Ensure each tenant who is signing the lease receives a personal copy, and provide an additional one for the company’s official records.
Notice of Water Fluctuation
If your commercial property is near a source of water maintained by the Texas Water Code, you should consider a Notice of Water Fluctuation disclosure. Water sources maintained by the Texas Water Code normally consist of man-made reservoirs or lakes that hold 5,000 acre feet of water or more. A Notice of Water Fluctuation disclosure would let tenants know about the potential for flood or water damage. It would also name the particular body of water in question as well as its proximity to the property.
Writing a Texas Commercial Lease Agreement
Commercial lease agreements exist to protect the rights and business interests of the landlord and tenant. Here is a list of all sections necessary to include in a legally-compliant commercial lease agreement in the state of California, along with descriptions of list items as applicable:
Names of Parties
Your commercial lease begins by naming all parties concerned. Ensure there is a space for the business and personal names of both parties.
For example, your lease may state that “this lease is being conducted between (your name) doing business as (your business name) herein known as “landlord” and (tenant name) doing business as (tenant’s business name), hereinafter known as “tenant.”
Property Location and Type
List the property address, including the unit number if applicable. In buildings containing multiple tenants, spell out the exact room or other space that your tenant will have sole access to.
Along with the location, you should also list any specific zoning ordinances that govern your property. Include a few lines that describe how the property is zoned, along with another sentence or two that requires your tenant to adhere to them. As an example, if your business is zoned as an office or retail district, your tenant should agree not to conduct industrial operations or vice versa.
Spell out the date on which the lease will commence and end. Mention what will happen if the tenant becomes a holdover or goes out of business before the lease ends. Will you allow tenants to sublease the property or would you rather they surrender it?
Within the lease terms section, you should also include information regarding termination. Spell out any specific notice requirements or penalties for early termination. Talk about what happens if the tenant sells the business to another party. Will you allow the new owner to automatically assume the lease, or will you require that person to sign a whole new one?
Section 93.002 (e) of the Texas Property Code talks about a landlord’s right to remove and store a tenant’s property whenever a commercial property has been abandoned. You may want to assert this right by adding a paragraph that states this. Include the fact that you will exercise your right to dispose of the property if it is not claimed within 60 days after being stored.
Rent Amount and Late Fees
List how much the monthly, annual, or semi-annual rent will be. Unlike residential leases, commercial ones are often for a much longer period of time, typically several years. Accordingly, you may wish to increase the rent before the lease period ends. Let the tenant know how and when you will do so. For example, you may state that rent will increase by a certain percentage annually. Another option would be to list specific dates on which the increase will become effective along with the dollar amounts.
There may be certain fees or penalties associated with the late payment of rent. If so, these should be stated in this section as well. Include the amount of any late fees as well as the timeframe in which they will take effect.
List the amount of the security deposit and the accepted form of payment. Section 93.005 of the Texas Property Code requires commercial landlords to return a security deposit no later than 60 days after a tenant vacates. Include a sentence to that effect, and note that the tenant is responsible for providing you with a forwarding address.
Tenants should also understand that you maintain the right to withhold certain portions of the security deposit to cover back rent or damages that exceed what would normally be considered fair wear and tear. Add a clause stating this and have your tenant initial.
Utilities and Trash Removal
List every utility associated with the commercial property as well as which party is responsible. In shared buildings, you may need to list what percentage of a utility your tenant is responsible for instead.
When it comes to trash removal, list this item separately and provide more details as to how this is to be managed. For example, will the tenant be responsible for renting a dumpster or paying part of the costs of a shared one?
Does the business require one or more permits from the Texas Commission on Environmental Quality (TCEQ)? This could be needed if your tenant will dispose of medical waste, industrial or hazardous materials, dredge, fill material, radioactive waste, or scrap tires. Ensure tenants understand that obtaining the necessary disposal permits are their responsibility and that you will not be held liable for their failure to do so.
You may want to limit or prohibit the use of hazardous materials that are not expressly required in your tenant’s business operations. If so, include a clause stating that the tenant will limit the use of hazardous materials, and will store and dispose of any that are used in accordance with state and federal law. Let the tenant know that he or she will be responsible for paying any fines imposed by the EPA or TCEQ for failing to comply with state or federal environmental laws.
Improvements and Renovations
Your tenant may wish to modify the property to better suit his or her business. Will you allow this? If so, who will be responsible for paying for the improvement? Will you require the tenant to return the property back to its original condition upon termination of the lease? Who will maintain ownership of any fixtures that are installed, and which party will be responsible for maintaining and repairing them?
These are all very important questions that you should consider carefully. Ensure that specific answers to these questions are clearly spelled out so that there is no room for confusion. Questions over improvements are one of the leading causes of commercial property disputes, and often lead to legal action. Accordingly, your section on improvements and renovations may be several paragraphs or even pages long.
Maintenance and Repairs
Maintenance and repairs are normally a landlord function. However, there may be certain instances in which the tenant would be responsible instead. This includes everyday maintenance tasks such as cleaning and cutting the grass. Be sure your tenant knows what he or she is responsible for by listing each item and stating that these things will be done at the renter’s expense.
Include maintenance and repairs on your parking lot. Specify who is responsible for repaving, filling pot holes, repainting stripes, or maintaining handicapped parking spaces. Keep in mind that you will likely be responsible for major repairs such as repaving, but that you may wish to have your tenants keep up with routine things such as repainting parking lines.
When tenants must share certain areas, defining the common area factor is also important. The common area factor is used to determine how much each commercial tenant will pay for maintaining areas that everyone in the building uses. In most commercial buildings, this is anywhere from six to eight percent, which would be expressed as 1.06 or 1.08.
As a commercial landlord, you are required to carry the appropriate amount of insurance on your building. However, your policy will not cover your tenant’s merchandise or business property. As such, you must require all tenants to carry the appropriate amount of insurance for their respective businesses. The minimum amount recommended is normally $1 million; however, you could require more if the business you are renting to does more than that amount annually in sales.
You may wish to go a step further and require your tenant to provide proof of insurance. If so, write a paragraph stating that on a particular date, the tenant provided you with a copy of insurance policy (x) and list the various amounts of coverage.
As with residential property, commercial tenants also have the right to the peaceful enjoyment of their properties. Even so, there may be times when you will need to enter the premises to make repairs, allow inspections or conduct other business. Let the tenant know that whenever possible you will provide notice and list the manner in which you plan to do so. Provide a method of notification whenever such advance notice is not possible. For example, you may wish to place a notice on the door or send an email.
Include a paragraph that states your tenant will not use this property for any criminal activity or allow anyone else to do so. Let your tenant know that he or she is responsible for preventing crime associated with the business, and should take reasonable measures to keep criminal acts from happening. This may include hiring security guards or loss prevention managers to assist with maintaining a safe environment.
Sex Offender Registry
If your city has enacted certain child safety zones, this means that sex offenders may not frequent those areas. Ensure your tenants know whether your business falls into one of the child safety zones and what their responsibilities are as a result. For example, you may need to enforce the concept of performing a background check on all employees so that sex offenders are not hired to work within child safety zones.
Keep in mind that Texas law requires certain offenders to register their home address as well as the address of their employer. If you are not located in a child safety zone, the tenant should ensure that any employees who are required to register their work address do so.
Signatures and Notary
All commercial lease agreements should be signed by both the landlord and tenant. Each person may wish to have a witness, in which case you will want to leave space for that individual’s signature as well. Although not required, Texas commercial lease agreements are often witnessed and stamped by a licensed notary public. If this is something you desire, then you will want to ensure there is enough room for the notary’s signature and seal.