The basic lease form (form 25-1 in this chapter) contains the minimal terms necessary for a lease. Although the form could be used as written in appropriate circumstances, its primary purpose is as a drafting tool, a core lease from which to draft for the particular situation. This lease has been adapted for use in various circumstances. Form 25-5 is a residential lease form derived from the basic lease form but containing the necessary modifications to convert the basic lease into a residential lease. The basic lease has also been adapted for use as a retail lease (form 25-2), an office lease (form 25-3), an industrial lease (form 25-6), and a manufactured-home community lease (form 25-11).
A lease is a conveyance of real property for a designated period of time with a reversionary interest in the lessor. Over time, the newer concepts of contract law have crept into use with the older property law, and the lease has become a hybrid of a conveyance and a contract between the landlord and the tenant. The landlord-tenant relationship is governed by title 8 of the Texas Property Code as well as by other statutes and a large body of case law. Title 8 of the Texas Property Code is divided into four chapters: chapter 91 (Provisions Generally Applicable to Landlords and Tenants), chapter 92 (Residential Tenancies), chapter 93 (Commercial Tenancies), and chapter 94 (Manufactured Home Tenancies).
If the term of the lease is more than one year, the lease is unenforceable unless it is in writing and signed by the party to be charged with its covenants. Tex. Bus. & Com. Code § 26.01; Tex. Prop. Code § 5.021. Certain provisions of the Property Code require that the lease be signed by both parties for the lease to serve as an exception to the statutory provisions. See, e.g., Tex. Prop. Code § 91.001(e)(1). An assignment of a lease that is subject to the statute of frauds must also comply with the statute of frauds. Other provisions of the Property Code may not be waived by the lease. See, e.g., Tex. Prop. Code § 92.008(g). Manufactured-home community leases must be in writing and signed by both the landlord and the tenant. Tex. Prop. Code § 94.053(a).
§ 25.1:3Caution: Property Description
As a general rule a lease that is subject to the statute of frauds must contain, within itself or by reference to some other existing writing, the means or data by which the premises to be leased may be identified with reasonable certainty. Hebisen v. Nassau Development Co., 754 S.W.2d 345, 351 (Tex. App.—Houston [14th Dist.] 1988, writ denied), overruled on other grounds by Formosa Plastics Corp. v. Presidio Engineers & Contractors, Inc., 960 S.W.2d 41 (Tex. 1998). The rule for leases is derived from the general rule for sales and conveyance of real estate. See, e.g., Pick v. Bartel, 659 S.W.2d 636, 637 (Tex. 1983); Morrow v. Shotwell, 477 S.W.2d 538, 539 (Tex. 1972). A manufactured-home community lease agreement must contain the address or number of the manufactured-home lot. Tex. Prop. Code § 94.053(c)(1).
If the lease agreement that is subject to the statute of frauds contains no adequate description of the leased premises, it is unenforceable. If the leased premises are identified only by a suite number or a diagram on an attached exhibit, such as a schematic of an undesignated floor of the building or project of which the leased premises are a part, the lease may be unenforceable. Sometimes the schematic of the undesignated floor shows a certain section by crosshatches, but if there is no metes-and-bounds or lot and block number from a plat description of the entire project there is no legal description of the leased premises. See, e.g., River Road Neighborhood Ass’n v. South Texas Sports, 720 S.W.2d 551 (Tex. App.—San Antonio 1986, writ dism’d); Lubel v. J.H. Uptmore & Associates, 680 S.W.2d 518 (Tex. App.—San Antonio 1984, no writ). There is an exception where a street address or a commonly known name may be a sufficient property description if there is no confusion. Apex Financial Corp. v. Garza, 155 S.W.3d 230, 237 (Tex. App.—Dallas 2004, pet. denied); TLC Hospitality, LLC v. Pillar Income Asset Management, Inc., 570 S.W.3d 749, 767 (Tex. App.—Tyler 2018, pet. denied). The best practice is to use a lot and block number from a plat map or a metes-and-bounds description.
§ 25.1:4Cautions: Risk Allocation
Indemnities and Waivers: The indemnity provisions of the multitenant building or project lease forms are designed to protect the respective parties from their own ordinary negligence (but not gross negligence or willful misconduct) on a geographic basis; that is, the tenant indemnifies the landlord for any damage or injury occurring within the premises, whether or not the ordinary negligence of the landlord is a cause of the damage or injury, and the landlord indemnifies the tenant for any damage or injury occurring within the common areas, whether or not the ordinary negligence of the tenant is a cause of the damage or injury. The waiver of subrogation provision contained in the multitenant building or project lease forms releases both parties from liability for property damage and loss of revenues up to the limits of the property insurance coverages required to be carried under the lease, notwithstanding the ordinary negligence of the party causing the property damage or loss of revenues. The indemnity and waiver provisions are designed to comply with the two-pronged “fair notice doctrine” under Texas case law: (1) the “express negligence rule” set forth in Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705 (Tex. 1987), and (2) the “conspicuousness rule” enunciated in Dresser Industries, Inc. v. Page Petroleum, Inc., 853 S.W.2d 505 (Tex. 1993).
Insurance: It is critical that the parties consult with their insurance professionals to determine the exact insurance coverages to be included on the insurance addendum incorporated into the lease form or, if applicable, the separate insurance addendum (forms 25-35 and 25-36 in this chapter) and that the attorneys tailor the indemnity and casualty provisions in response to the actual insurance policies that will be carried by the parties.
Rebuilding Obligations: The restoration obligations of the parties after a casualty are tied to the description of “Tenant’s Rebuilding Obligations” contained in the Basic Terms of the lease. The tenant is expected to restore those leasehold improvements described in “Tenant’s Rebuilding Obligations” in addition to replacing its personal property (including inventory, furniture, trade fixtures, and equipment). Because the tenant should carry property insurance to cover its restoration obligations, a detailed description is imperative. See clauses 25-13-8, 25-13-9, and 25-13-10. The landlord’s restoration obligations are defined in terms of the portions of the premises that the tenant is not required to rebuild.
For example, the tenant may be receiving the space in shell condition and be responsible for the initial construction of all leasehold improvements. The parties may decide that the tenant will restore all of the leasehold improvements inside the shell if the premises are destroyed. At the other extreme, the tenant may be receiving the premises with existing leasehold improvements, and the parties may decide that the landlord should restore all leasehold improvements after a casualty. Obviously the possibilities are infinite and depend on the economic underpinnings of the transaction as well as the relative sophistication of the parties. However, the question must be asked at the outset of the transaction so that both parties are clear about the allocation of the risk for restoration and that adequate property insurance is obtained.
See chapter 17 in this manual for more information on risk allocation.
§ 25.1:5Fair Credit Reporting Act
The Fair Credit Reporting Act, 15 U.S.C. §§ 1681–1681x, applies to landlords who use consumer reports in screening prospective tenants. If the landlord takes adverse action based in whole or in part on a consumer report, the landlord is required to provide the prospective tenant with a notice of adverse action meeting the requirements of section 1681m of the Act. 15 U.S.C. § 1681m(a)(1). A consumer report includes a credit report from a credit bureau or from a tenant-screening service. See 15 U.S.C. § 1681(d). Adverse action includes a denial of the application or a requirement for a deposit, a higher deposit, or higher rent than would have been required of other tenants. See 15 U.S.C. § 1681(k).
Landlords who furnish information regarding a tenant to a credit reporting agency must comply with the duties set out in section 1681s–2 of the Act, including the duty to furnish correct information, to correct and update information, and to investigate disputed information. See 15 U.S.C. § 1681s–2.
The lease forms in this chapter provide that a lease will terminate if, as a result of condemnation or conveyance in lieu thereof, the premises cannot be used for the purposes provided by the lease. They also provide that the tenant is not entitled to any proceeds from the condemnation except for relocation benefits or awards that are available to the tenant but that do not reduce the award or proceeds payable to the landlord. The federal government provides relocation benefits, moving expenses, and similar payments to persons relocated as a result of condemnation under the federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, 42 U.S.C. §§ 4601–4655. The state of Texas and local governments are authorized to provide similar payments as part of the cost of acquisition of the real property. See Tex. Prop. Code § 21.046. Under Texas law, however, if a lease provides that the lease terminates on condemnation, the tenant is not entitled to any condemnation proceeds because the tenant no longer has a compensable leasehold interest. Motiva Enterprises, LLC v. McCrabb, 248 S.W.3d 211 (Tex. App.—Houston [1st Dist.] 2007, pet. denied). Consequently, it is possible that a condemnor could find that a tenant who is not a party to the condemnation proceeding is not eligible for relocation or other benefits or awards.
§ 25.2General Instructions for Completing Forms
For information about completing the forms generally, see chapter 3 in this manual. In most forms, the information that the attorney must provide is listed at the beginning of the form. Of course the attorney may add other specific provisions and references to exhibits and riders at the end of the form.
For general information about designation of parties, see section 3.9. Information relevant to some conveyances, such as those involving homestead property, is not relevant to a lease and need not be included with the party designations.
§ 25.3General Considerations for Retail Lease
The retail lease, form 25-2 in this chapter, is an adaptation of the basic lease including provisions tailored to leasing retail space in a shopping center. The modifications deal with the specifics associated with a typical retail business operation, including provisions concerning trade name, description of the shopping center, payment of percentage rental, and pass-through of common area maintenance charges. To provide for payment of percentage rental, a definition of gross sales is added, as is a covenant for operating a business within the premises so as to maximize gross sales. The definition of “gross sales” used in this lease is basic, and the attorney should consider whether some amendment or amplification is appropriate for the situation at hand. Other specific provisions apply to the landlord and the tenant concerning various operational and maintenance issues. The attorney may desire to include more specific provisions dealing with such matters as parking and sign-age, which may be proper subjects for inclusion in the rules and regulations exhibit. In this lease, the percentage rent is due on the tenth of the month, rather than the first, to give the tenant time to close its books for the previous month and to compute percentage rent.
§ 25.4General Considerations for Office Lease
The office lease, form 25-3 in this chapter, is an adaptation of the basic lease containing specific provisions tailored to a commercial office tenancy. The variations are provisions for passing through operating expenses, a fairly common practice in leasing office space; for parking rights; and for rights to use common areas. The lease is also more specific about the services required to be provided by the landlord, again with a view toward comporting with what is typical industry practice. Form 25-4 provides a rider for parking facilities.
§ 25.5General Considerations for Residential Lease
The residential lease, form 25-5 in this chapter, is an adaptation of the basic lease tailored to a residential tenancy. The form is designed for simple residential tenancies such as a lease of a home or a townhouse unit. It is not particularly suited for use with a multifamily project with on-site management. It varies from the basic lease in providing specific provisions relating to residential occupancy, such as the landlord’s duty to maintain the premises to comply with applicable law.
§ 25.5:1Rent Payment by Check and Late Fee
If the landlord wants to require payment by check or other traceable means of payment, a residential lease must state so in writing. Tex. Prop. Code § 92.011(a). This clause appears as paragraph B.1.l. in the “Tenant’s Obligations” section of the residential lease but may be omitted if the parties desire. See form 25-5 in this chapter. If the landlord collects a fee for late payment of rent, notice of the fee must be included in the lease and the fee must be reasonable. Tex. Prop. Code § 92.019.
§ 25.5:2Right to Terminate Residential Leases in Certain Circumstances
Residential tenants have special statutory rights to terminate leases under certain circumstances.
A tenant may terminate his rights and obligations under a residential lease, vacate the residence, and avoid liability for future rent (1) if the tenant or an occupant of the dwelling unit is a victim of family violence or (2) if the tenant is a victim of sexual assault or the parent or guardian of a victim of sexual assault, indecency with a child, sexual performance by a child, continual sexual abuse of a child, or any attempt to commit any of the foregoing offenses under section 21.02 of the Texas Penal Code. The Texas Property Code imposes specific prerequisites, documentation, and deadlines for a tenant to exercise these statutory rights of early termination. Tex. Prop. Code §§ 92.016, 92.0161. The Property Code requires specific language in the residential lease advising the tenant of these remedies. For circumstances involving family violence, the relevant statutorily provided lease provision reads, “Tenants may have special statutory rights to terminate the lease early in certain situations involving family violence or a military deployment or transfer.” See Tex. Prop. Code § 92.017(g). For circumstances involving sexual violence, the relevant statutorily provided lease provision reads, “Tenants may have special statutory rights to terminate the lease early in certain situations involving sexual assault or stalking.” See Tex. Prop. Code § 92.0161(g). Paragraph D.22. of the residential lease, form 25-5 in this chapter, combines these two advisories. If the advisories are not in the residential lease, the tenant, if he follows the procedural requirements, may not only terminate the lease and avoid paying future rent, but will also not be liable for delinquent unpaid rent.
If a tenant who is the sole occupant of a dwelling dies before the expiration of the lease, a representative of the estate of the tenant may terminate the tenant’s rights and obligations under the lease, vacate the residence, and avoid liability for future rent. Tex. Prop. Code § 92.0162.
A tenant who is a servicemember or dependent of a servicemember similarly may terminate a lease, vacate the dwelling, and avoid liability for future rent if the tenant enters the military service after executing a residential lease or, if the tenant was a servicemember at the time of execution, the tenant receives orders for a permanent change of station or deployment with a military unit for a period of ninety days or more. Tex. Prop. Code § 92.017(b). The relevant statutorily provided lease provision reads, “Tenants may have special statutory rights to terminate the lease early in certain situations involving family violence or military deployment or transfer.” See Tex. Prop. Code § 92.017(g). Specific notice and delivery requirements are set forth in the statute. The right to terminate in the case of family violence may not be waived, but the right of a servicemember or a dependent may be waived in certain circumstances specified in the Property Code. Additionally, if the residential lease form does not contain a specific notice provision, the vacating tenant may also avoid liability for delinquent unpaid rent. Form 25-5 contains this provision.
Form 25-5 also contains the required provisions regarding landlord liabilities and tenant remedies for repair of conditions that materially affect the physical health and safety of an ordinary tenant as authorized by Property Code sections 92.056–.0563. Tex. Prop. Code § 92.056(g) requires a lease to “contain language in underlined or bold print that informs the tenant of the remedies available under this section [§ 92.056] and Section 92.0561.” If these provisions or substantially equivalent language is not in the lease, the tenant who terminates a lease under these sections is released from all liability for any delinquent, unpaid rent owed to the landlord by the tenant on the effective date of the lease termination. See Tex. Prop. Code §§ 92.056, 92.0561.
Property Code section 92.0135 requires a specific notice of floodplain. See section 25.5:3 below and form 25-38 in this chapter. If a landlord violates section 92.0135 and a tenant suffers a substantial loss or damage to the tenant’s personal property as a result of flooding, the tenant may terminate the lease by giving a written notice of termination to the landlord not later than the thirtieth day after the date the loss or damage occurred. Tex. Prop. Code § 92.0135(f). A tenant suffers a substantial loss or damage to personal property if the total cost of repairs to or replacement of the personal property is 50 percent or more of the personal property’s market value on the date the flooding occurred. Termination of the lease is effective when the tenant surrenders possession of the dwelling.
§ 25.5:3Notice for Dwelling Located in Floodplain
At or before the execution of a lease, a landlord must provide a written notice to a tenant in a separate written document that provides certain information about residential dwellings in floodplains, whether or not the dwelling is actually located in a floodplain. See form 25-38 in this chapter.
§ 25.5:4Security Deposit in Residential Lease
A landlord is liable for failure to return a residential tenant’s security deposit within thirty days after the date the tenant surrenders possession of the premises and provides a forwarding address to the landlord or landlord’s agent. Tex. Prop. Code § 92.103(a). A landlord may offer the tenant an option to pay a fee in lieu of a security deposit. Tex. Prop. Code § 92.111. If a landlord retains all or part of the security deposit, the landlord must provide the tenant with an itemized list of deductions. Tex. Prop. Code § 92.104(c). There is a presumption of bad faith on the part of the landlord if the security deposit is not returned to the tenant or if the landlord fails to provide the tenant with an itemized list of deductions on or before sixty days after the date the tenant surrenders possession. Tex. Prop. Code § 92.109(a). See also Tex. Prop. Code §§ 92.101–.111. The lease forms in this chapter have an agreement by the landlord to return the security deposit within thirty days.
§ 25.5:5Caution: Residential Lease
Texas Property Code provisions and case law applicable to residential tenancies vary in significant ways from the law applicable to commercial tenancies. The attorney should carefully review chapter 92 of the Property Code. No attempt has been made to cover all aspects of or duties relating to a residential situation. For example, a residential landlord has a duty to install smoke alarms. See Tex. Prop. Code § 92.255. The liability of a guarantor of a residential lease is subject to certain limitations. See Tex. Prop. Code § 92.021. A residential landlord is subject to restrictions on the right to lock out a tenant for nonpayment of rent that are not applicable to the commercial landlord. Compare Tex. Prop. Code § 92.0081, with Tex. Prop. Code §§ 93.002–.003. Also, the law concerning interruptions of utilities in residential tenancies differs from that for commercial tenancies. Compare Tex. Prop. Code §§ 92.008, 92.0091, 92.301, with Tex. Prop. Code § 93.002.
§ 25.6General Considerations for Industrial Lease
The industrial lease, form 25-6 in this chapter, is an adaptation of the basic lease including clauses necessary to convert the basic lease to an industrial lease. The industrial lease has more similarities to the retail lease than other lease forms minus, of course, percentage rental, covenant of continuous operations, and common area maintenance provisions. The main additions to the industrial lease deal with the tenant’s obligation to pay for industrial waste introduced into the sanitary sewer system; to maintain dilution tanks, grease traps, and so forth; and to share in the joint maintenance of rail services, if any. Attorneys using the industrial lease as a drafting form might also consider using the asbestos disclosure notice, form 25-31, particularly if the building was constructed before 1981.
§ 25.7General Considerations for Hunting, Agricultural, and Grazing Leases
The hunting lease, form 25-7 in this chapter, is an adaptation of the basic lease tailored for the use of agricultural land for hunting. There is a technical distinction between a hunting lease, which is a license or profit à prendre, and a lease that conveys an interest in real property. See Digby v. Hatley, 574 S.W.2d 186 (Tex. App.—San Antonio 1978, no writ). In most transactions this distinction is not significant, and the form uses the common term lease rather than draw attention to the distinction. This form applies to the surface only. If improvements on the premises are to be available for the tenant’s use, additions must be made to describe and provide for that use.
The agricultural lease, form 25-8, is an adaptation of the basic lease for growing crops. The rent clause is different, and the obligations of the tenant and the landlord have been modified slightly to take into account this different use.
The grazing lease, form 25-9, is an adaptation of the basic lease for grazing. It differs only slightly from the basic lease.
The agricultural lease and the grazing lease both contain clauses granting a contractual landlord’s lien in the tenant’s crops and livestock located on the leased premises. Complete perfection of a security interest in farm products requires compliance with both article 9 of the Texas Business and Commerce Code and the federal Food Security Act of 1985. See section 9.7:2 and accompanying forms in chapter 9 in this manual.
§ 25.7:1Instructions for Completing Hunting Lease
A list of persons authorized to hunt on the premises should be contained in an exhibit to the hunting lease. This list may be specific (for example, “Bob Smith, Ed Jones”) or more general (for example, “Martha Stuart and four guests” or “six guns”).
§ 25.7:2Caution: Hunting Lease
There are many laws that regulate the taking of game and the recreational use of land of which parties to hunting leases should be aware. As with the other forms in the manual, no attempt has been made to reiterate the duties imposed by statute and case law. In particular, the attorney should carefully review Texas Parks and Wildlife Code chapter 43, subchapter D, which governs hunting lease licenses. For a general discussion of this topic, see the articles cited in section 25.13 below. See also section 2.147 in this manual referring to chapter 75 of the Texas Civil Practice and Remedies Code.
§ 25.8General Considerations for Manufactured-Home Community Lease
The manufactured-home community lease, form 25-11 in this chapter, is an adaptation of the basic lease tailored to a manufactured-home community tenancy. It varies from the basic lease by providing specific provisions necessitated by the enactment of Texas Property Code chapter 94. Chapter 94 governs the landlord-tenant relationship in manufactured-home communities in which four or more lots are offered for lease for the purpose of the tenant’s placing on the landlord’s property a manufactured home that is not owned by the landlord. Tex. Prop. Code § 94.002. See also Tex. Prop. Code § 94.001. This legislation regulates the form and content of the lease agreement (Tex. Prop. Code §§ 94.051–.057), security deposits (Tex. Prop. Code §§ 94.101–.109), the landlord’s warranty of suitability and duty to maintain and repair (Tex. Prop. Code §§ 94.151–.162), and other aspects of the landlord-tenant relationship in manufactured-home community tenancies.
§ 25.8:1Disclosures at Time of Application
At the time a landlord receives an application from a prospective tenant of a lot in a manufactured-home community, the landlord must provide a copy of the proposed lease, the rules of the manufactured-home community, and a separate statutory notice of the tenant’s legal right to a six-month initial lease term and sixty days’ notice of nonrenewal or, in the case of a change in land use of the manufactured-home community, 180 days’ notice of nonrenewal. Tex. Prop. Code § 94.051. Form 25-12 in this chapter gives the statutorily required notice.
§ 25.8:2Manufactured-Home Community Rules
Manufactured-home communities may adopt written rules, which are considered part of the lease agreement, establishing the policies and regulations of the manufactured-home community, including regulations relating to use, occupancy, quiet enjoyment, and health, safety, and welfare of tenants of the manufactured-home community. Tex. Prop. Code § 94.008.
Unless the manufactured-home community lease requires payment of rent by check or other traceable means, a landlord must accept and give receipts for cash rental payments. Tex. Prop. Code § 94.007. A clause requiring payment of rent by traceable means appears as paragraph B.1.m. of the manufactured-home community lease (form 25-11 in this chapter) but may be omitted if the parties desire.
§ 25.8:4Disclosure of Ownership and Management
The landlord must disclose the name and address of the record title holder of the leased lot in the manufactured-home community and the names and addresses of any off-site property managers. Tex. Prop. Code § 94.010(a). The disclosure may be contained in the lease agreement, in the rules, in a notice continuously posted in the community or the manager’s office, or in writing, delivered within seven days of the landlord’s receipt of a written request for the information. Tex. Prop. Code § 94.010(b).
§ 25.8:5Minimum Initial Lease Term
Manufactured-home community landlords are required to offer prospective tenants an initial lease term of at least six months, but the parties may agree to a shorter or longer initial lease term if requested by the tenant. Tex. Prop. Code § 94.052(a).
§ 25.8:6Landlord’s Notice to Vacate or Offer to Renew
Manufactured-home community landlords are required to provide a tenant with a notice to vacate the leased premises or an offer to renew the lease at least sixty days before the expiration of the lease. Tex. Prop. Code § 94.055(a). If the landlord offers to renew the lease, the renewal offer must notify the tenant of any changes in the current lease terms and include a statement notifying the tenant that the tenant’s failure to timely reject the renewal offer will result in the automatic renewal of the lease as modified by the terms contained in the landlord’s renewal offer beginning on the first day after the expiration of the current lease. Tex. Prop. Code § 94.055(b). To avoid the automatic renewal of the lease as modified by the terms contained in the renewal offer, the tenant must notify the landlord not later than the thirtieth day before the date the current lease term expires that the tenant rejects the landlord’s renewal offer and intends to vacate the leased premises on expiration of the current lease term. Tex. Prop. Code § 94.055(c). This statutory provision is a noted departure from the well-established common-law principle that silence does not bind a party to a contract.
Regardless of the term of a manufactured-home community lease, a landlord must give a tenant at least sixty days’ prior written notice if the landlord is not going to renew the lease or, in the case of a change in land use, 180 days’ notice of nonrenewal. Tex. Prop. Code §§ 94.051, 94.052(b).
§ 25.8:8Landlord’s Maintenance Obligations
A manufactured-home community landlord is required to maintain all common areas, utility lines not maintained by a public utility or political subdivision, roads, mailboxes, and garbage collection and to repair or remedy any condition materially affecting the physical health and safety of an ordinary tenant of the manufactured-home community. Tex. Prop. Code § 94.152. The landlord must make a diligent effort to repair or remedy such a condition after a written request specifying the condition to be repaired is given to the landlord by a tenant who is not delinquent in the payment of rent at the time the notice is given. Tex. Prop. Code § 94.153(b). A manufactured-home community landlord has no duty to maintain or repair a condition present in or on a tenant’s manufactured home. Tex. Prop. Code § 94.153(a).
Unlike with other types of tenancies, a manufactured-home community landlord may prevent a tenant from entering the tenant’s manufactured-home lot, evict a tenant, or require removal of the tenant’s manufactured home from the lot only after obtaining a writ of possession. Tex. Prop. Code § 94.203(a). The writ of possession cannot issue before the expiration of thirty days after the date of the judgment granting possession if the tenant has paid the rent due for that thirty-day period. Tex. Prop. Code § 94.203(d).
§ 25.8:10Caution: Manufactured-Home Community Lease
The Texas Property Code provisions applicable to manufactured-home community tenancies vary in significant ways from the law applicable to either residential or commercial tenancies. The attorney should carefully review chapter 94 of the Property Code because the rights, duties, and liabilities of the parties under chapter 94 cannot be waived. See Tex. Prop. Code § 94.003. No attempt has been made in this manual to cover all aspects of or duties relating to the landlord-tenant relationship in a manufactured-home community. Appropriate modifications are required if the attorney elects to use the manufactured-home community lease for transactions not governed by chapter 94.
§ 25.9General Considerations for Commercial Lease
Commercial leases are considered by the legislature to be quite different from residential leases and manufactured-home community leases. Chapter 92 of the Texas Property Code contains the statutes concerned with residential leases, and chapter 94 contains the statutes concerned with manufactured-home community leases, whereas chapter 93 deals with commercial leases. Chapters 92 and 94 impart an air of legislative protectionism for the residential tenant, with numerous restrictions on the landlord; chapter 93 has a more laissez-faire policy and allows the parties to contract as they see fit. The drafter using the Texas Real Estate Forms Manual should be aware of these three Property Code chapters (as well as chapter 91, which deals with all tenancies) and should realize that the numerous legislative restrictions on a residential or manufactured-home community landlord do not apply to a commercial landlord.
§ 25.9:1Broker Lien in Commercial Lease
The Broker’s and Appraiser’s Lien on Commercial Real Estate Act, chapter 62 of the Texas Property Code, gives brokers a lien by reason of the sale or lease of real property. Section 62.021 sets forth the prerequisites for a broker to acquire a lien. See Tex. Prop. Code § 62.021. Section 62.021 gives the broker a lien against the landlord’s property for the commission on the lease if—
1.the broker earned the commission (pursuant to a written commission agreement (see Tex. Prop. Code § 62.003(4))), and
2.the broker recorded a notice of the lien (see Tex. Prop. Code § 62.024).
Tex. Prop. Code § 62.021(a). The commission agreement must disclose the right of the broker to claim a lien. Tex. Prop. Code § 62.021(e).
Section 62.022(b)(2) automatically waives the broker’s lien in a commercial lease if the broker’s commission agreement is included as a provision in the lease. Tex. Prop. Code § 62.022(b)(2). For this reason, the drafter may wish to include the real estate commission rider, form 25-32 in this chapter, as part of the lease. The drafter, however, should be careful to consider what effect renewal options might have on the real estate commission rider.
§ 25.9:2Security Deposit in Commercial Lease
A landlord is liable for failure to return a tenant’s security deposit within sixty days after the date the tenant surrenders possession of the premises and provides a forwarding address to the landlord or landlord’s agent. Tex. Prop. Code § 93.005(a). If a landlord retains all or part of the security deposit, the landlord must provide the tenant with an itemized list of deductions. Tex. Prop. Code § 93.006(c). There is a presumption of bad faith on the part of the landlord if the security deposit is not returned to the tenant or if the landlord fails to provide the tenant with an itemized list of deductions on or before sixty days after the date the tenant surrenders possession. Tex. Prop. Code § 93.011(d). See also Tex. Prop. Code §§ 93.004–.011. The lease forms in this chapter have an agreement by the landlord to return the security deposit within sixty days.
§ 25.9:3Assessment of Charges in Commercial Lease
Texas Property Code section 93.012 deals with assessment of charges by a commercial landlord against a commercial tenant. Section 93.012(a) reads as follows:
A landlord may not assess a charge, excluding a charge for rent or physical damage to the leased premises, to a tenant unless the amount of the charge or the method by which the charge is to be computed is stated in the lease, an exhibit or attachment that is part of the lease, or an amendment to the lease.
Tex. Prop. Code § 93.012(a). Most commercial landlords assess charges against the tenant on a regular basis for things such as extra keys; overtime heating, ventilating, and air conditioning; proportionate utilities and taxes; proportionate common-area expenses; and estimated operating expenses. Because Tex. Prop. Code § 93.012 requires either the amount of the charge or the method by which the charge is to be computed to be stated in the lease, the drafter may wish to add language covering most of the expected expenses to be assessed and a statement that the charge to be assessed will be the landlord’s actual cost. The lease forms in this chapter provide for assessment of charges to the tenant, but the method by which the charge is calculated is stated (for example, “Tenant’s pro rata share” of utility charges, common-area maintenance, taxes and insurance, and so forth). However, commercial landlords who assess to tenants charges other than rent for which the amount or method of computation is not specified in the lease, should be aware of section 93.012 of the Property Code.
§ 25.9:4Implied Warranty of Suitability in a Commercial Lease
In a commercial lease, a landlord warrants that the property is suitable for the tenant’s intended commercial purpose. Davidow v. Inwood North Professional Group—Phase 1, 747 S.W.2d 373 (Tex. 1988). This implied warranty exists separately and apart from any obligation the landlord may have under the lease. As a matter of law, the implied warranty is limited only by specific terms in the parties’ commercial lease whereby a tenant expressly agrees to repair certain defects. Inwood, 747 S.W.2d at 377. The parties may agree to waive this implied warranty. Gym-N-I Playgrounds, Inc. v. Snider, 220 S.W.3d 905 (Tex. 2007).
§ 25.9:5Doctrine of Independent Covenants; Tenant’s Right to Terminate for Landlord’s Material Breach
At common law, the lease was traditionally regarded a conveyance of an interest in land, and once the landlord delivered possession of the premises, the tenant had a duty to pay rent as long as possession continued. All lease covenants at common law were thus considered independent because the tenant, being in possession of everything entitled to under the lease, had to pay rent no matter what lease covenant the landlord breached. The Texas Supreme Court held in Rohrmoos Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469 (Tex. 2018), that the concept of independent covenants was antiquated and unworkable in a modern lease setting and no longer indicative of the contemporary relationship between a landlord and tenant. As a result, the court also held that a commercial tenant has the right to terminate its lease because of a material breach by the landlord.
§ 25.10Environmental Considerations for Leases
Attorneys drafting leases should be aware of environmental statutes dealing with hazardous materials and waste, such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), 42 U.S.C. §§ 9601–9675; the Resource Conservation Recovery Act (RCRA), as amended by the Hazardous and Solid Waste Amendments of 1984 and the Land Disposal Program Flexibility Act of 1996, 42 U.S.C. §§ 6901–6992k; and the Toxic Substances Control Act, 15 U.S.C. §§ 2601–2692. These environmental statutes, along with similar state statutes, may impose cleanup costs at the termination of a lease term on the “owner” or “operator” (landlord or tenant) of the “facility” (leased premises).
Landlords must provide tenants of residential property constructed before 1978 with a “Lead Warning Statement.” 42 U.S.C. §§ 4851b(27), 4852d. See section 2.150 in this manual. The disclosure form appears as form 25-30 in this chapter.
Federal law requires building and facility owners (landlords) to notify tenants of public and commercial buildings of the presence, location, and quantity of asbestos-containing materials or presumed asbestos-containing materials in tenant-occupied areas. This notice must be either in writing or in a personal communication before any demolition, construction, alteration, repair, maintenance, or renovation of structures, substrates, or portions thereof. See 29 C.F.R. §§ 1910.1001, 1926.1101. See form 25-31 for the disclosure.
Additional clauses that may be useful in lease transactions, such as arbitration, landlord’s lien subordination, and expansion rights, appear in form 25-13 in this chapter.
§ 25.11:1Subordination of Landlord’s Lien
If the tenant’s lender requires a first lien over the statutory landlord’s lien found in chapter 54 of the Texas Property Code and the security interest granted in the lease, insert clause 25-13-1 in this chapter. Form 25-24 (landlord’s lien waiver) also may be used for this purpose. Form 25-18 (subordination of landlord’s lien) may be used to authorize removal of secured property in the event of tenant’s default as borrower.
In a commercial lease, there is frequently a provision for adjusting the base rent. The landlord and tenant may agree to scheduled, specific, periodic increases or to adjustments based on the Consumer Price Index; in the latter case, the attorney may insert the inflation adjustment clause found at 25-13-2 in this chapter.
If the landlord wants to grant the tenant the right to lease additional space, insert clause 25-13-4 in this chapter and attach the expansion space rider at form 25-14.
If the landlord wants to grant the tenant the right to extend the lease term, insert clause 25-13-5 in this chapter and attach the extension option rider at form 25-15.
§ 25.11:5Tenant’s Right to Protest Appraised Value
If a property owner does not file a valuation protest, a tenant who is contractually obligated to reimburse the owner for property taxes is entitled to pursue an administrative protest before the appraisal review board. Tex. Tax Code § 41.413(b). A property owner is required to send a tenant obligated to pay taxes a copy of any notice of the appraised value of the property not later than the tenth day after the property owner receives the notice. The requirement to provide notice of appraised value does not apply if the property owner and the tenant agree in the lease to waive the requirement or agree that the tenant will not protest the appraised value of the property. Tex. Tax Code § 41.413(d). A tenant contractually obligated to reimburse a landlord for taxes imposed on the property may also appeal an appraisal review board order determining a protest brought by the tenant. Tex. Tax Code § 42.015. The statutory language is fairly vague, but it seems apparent that any tenant who, pursuant to its lease, is obligated to reimburse a landlord for real property taxes is entitled to exercise these rights and in so doing may request the appraisal review board to issue subpoenas to the landlord to provide relevant information and documentation regarding value. This, in turn, may require the landlord to disclose information, such as the rent roll for the property, that the landlord may wish to keep confidential. In addition, multitenant situations could result in unwieldy protests. The landlord who wishes to avoid these possibilities should consider including in the lease a provision like clause 25-13-6 in this chapter.
Chapter 171 of the Tax Code applies the Texas “margin tax” to most businesses, including limited partnerships previously exempt from the franchise tax. General partnerships, sole proprietorships, and businesses that do not meet the annual revenue minimum continue to be exempt. Landlords and tenants might negotiate any of the following treatments of the margin tax: (1) an express carve-out of the margin tax from real property taxes (tenant position), (2) reliance on the landlord’s general right to pass through the margin tax as a tax imposed in lieu of real property taxes (landlord position), or (3) the landlord’s right to pass through the margin tax as a tax in lieu of real estate taxes, but limiting the pass-through amount based on a formula or a cap (compromise position).
Additional forms that may be useful in lease transactions, such as an assignment, guaranty, and tenant estoppel certificate, are found at forms 25-16 through 25-22 in this chapter.
§ 25.12:1Subordination, Attornment, and Nondisturbance Agreement
If the landlord’s lender requires a first or prior lien on the landlord’s estate and a lease has been executed, use the subordination, attornment, and nondisturbance agreement at form 25-16 in this chapter to subordinate the lease but still protect the tenant’s rights following a foreclosure.
§ 25.12:2Tenant’s Subordination to Deed-of-Trust Lien
A lender may require that an existing lease be subordinated to its new lien. Foreclosure of the lien will then extinguish the lease. Form 25-17 in this chapter may be used to subordinate the lease.
§ 25.12:3Tenant’s Acceptance Letter
If the landlord requires the tenant to acknowledge that the premises are satisfactory, especially if the lease requires any improvements as a condition to the beginning of the lease, use the tenant’s acceptance letter at form 25-20 in this chapter. It is recommended that this form be used to establish the commencement date with certainty.
§ 25.12:4Landlord’s Lien Waiver
By using form 25-24 in this chapter, the owner of real property waives statutory and contractual landlord’s liens on any of the lessee’s personal property subject to the security interests of a third-party lender. Clause 25-13-1 also may be used for this purpose.
The lockout notice, form 25-27 in this chapter, is to be posted at the premises. See Tex. Prop. Code § 93.002. It is for use with commercial leases only. Do not use it with residential leases, which are governed by Tex. Prop. Code § 92.0081.
§ 25.12:6Notice of Change of Locks
Form 25-28 in this chapter is used if the lease does not contain language superseding Tex. Prop. Code § 93.002. The letter is to be given by the owner or property manager and is for use with commercial leases only. Do not use it for residential leases. See Tex. Prop. Code § 92.0081.
§ 25.12:7Tenant Improvements Rider to Lease or Work Letter
Form 25-29 in this chapter may be used with the basic lease, the retail lease, the office lease, or the industrial lease if the parties wish to provide for construction of tenant improvements to the leased premises. The work letter provides a general outline for a description of the work and the allocation of responsibility for preparation of plans, performance of work, and payment of any allowances or other amounts by the landlord. The form also requires the contractor to maintain insurance and sets out the effect of construction delays on the commencement date of the lease.
§ 25.12:8Lead-Based Paint Hazards Disclosure
Form 25-30 in this chapter is based on the sample disclosure format for target housing rentals and leases issued by the Environmental Protection Agency and the Department of Housing and Urban Development. See 61 Fed. Reg. 9074 (1996); see also 40 C.F.R. § 745.113. The rule does not require the use of any specific format as long as all the required elements are included in the disclosure. See section 2.150 in this manual for additional information.
Form 25-31 in this chapter is for disclosure of asbestos-containing material or presumed asbestos-containing material by commercial building or facility owners. The Occupational Safety and Health Administration rules require commercial building or facility owners to notify tenants of the presence of asbestos-containing materials or, if the building was constructed before 1981, of presumed asbestos-containing materials. See 29 C.F.R. §§ 1910.1001, 1926.1011. The rules do not require the use of any specific format.
§ 25.12:10Modification of Lease
The modification of lease, form 25-33 in this chapter, is used to document changes to the lease during the lease term.
§ 25.12:11Termination of Lease
The termination of lease, form 25-34 in this chapter, is used if the parties agree to terminate the lease before the end of the lease term.
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