A commercial lease is a contract between the landlord and tenant. There are five essential elements of a valid lease: offer, acceptance, mutual assent, execution and delivery, and consideration. In addition, the Texas Property Code imposes certain default requirements on landlords and tenants if a lease does not make its own provisions.
The Five Elements of a Commercial Lease
The first step in any lease is an offer. One party must intend to make an offer, the terms of which are clear and definite, and those terms are communicated to the other party.
Next, the offer must be accepted. The party making the offer may be revoked or set a time limit for acceptance. And just like the offer, the other party’s acceptance must be “clear and definite” and communicated to the offeror.
Of course, a lease is not a contract unless there is mutual assent, also known as a “meeting of the minds.” For instance, if a landlord offers to rent a commercial space for $2,000 per month, and you respond by saying you would take it for $1,800, there has been no acceptance or mutual assent. You are simply bargaining.
It is critical to ensure that there is a meeting of the minds. Texas courts will not enforce a lease if there is evidence of fraud or misrepresentation used to trick one party into accepting the agreement. In such cases, there is no meeting of the minds and therefore no valid lease.
But once there is offer, acceptance, and mutual assent, the next step is to actually deliver the lease. Under Texas law, commercial real estate leases with a term of more than one year must be in writing to be enforceable. Oral leases of less than one year are permitted, but not necessarily advisable.
Finally, there is consideration. In broad terms, this means that “something of value” is given in exchange for something else of value. Typically in commercial real estate leases, rent is paid in exchange for occupying the property.
Keep in mind that unless the parties’ written lease expressly states otherwise, a security deposit is not consideration. Indeed, a security deposit is not necessary to create an enforceable lease. Texas law defines a deposit as “any advance of money, other than a rental application deposit or an advance payment of rent, that is intended primarily to secure performance under a lease of commercial rental property.”
Dealing With Security Deposits
If a commercial landlord does require a security deposit, it must refund it within 60 days of the tenant surrendering the premises and providing a forwarding address. Under Texas law, a tenant’s claim to a security deposit supersedes any other creditor claim against the landlord, even if it has filed for bankruptcy protection.
A landlord may not keep any part of a commercial tenant’s security deposit due to “normal wear and tear” on the property. However, the landlord is permitted to make deductions from the deposit for “damages and charges for which the tenant is legally liable,” including unpaid rent, taxes, and utility bills. If a landlord makes any such deductions, it must provide the tenant with a “written description and itemized list.” But such a description is not required if the tenant owes back rent and “no controversy exists” as to how much.
It should also be noted that Texas law does not allow a tenant to skip out on the last month’s rent by asking the landlord to just “keep the security deposit.” This is considered an act of “bad faith” on the tenant’s part. Not only can the landlord sue the tenant for the unpaid last month’s rent, the court is authorized to award triple damages, as well as require the tenant to pay the landlord’s legal fees.
Can the Landlord Lock Out the Tenant?
If a tenant is “delinquent” in paying any part of the rent, Texas law says the landlord has an immediate right to change the locks and keep the tenant out. The landlord must post a “written notice on the tenant’s front door” stating where a new key can be obtained–during the tenant’s “regular business hours”–if and when the tenant pays any back rent owed.
While a landlord may lock out a tenant, it may not cut off utilities or remove the tenant’s personal property from the premises. And in the event of any conflict between the parties’ written lease and Texas law on this subject, the lease prevails.
Need Help With a Commercial Lease?
This is just a brief overview of some of the laws applicable to commercial leases in Texas. An experienced Texas real estate litigation attorney can assist you with negotiating or modifying a commercial lease. At Lindquist Wood Edwards LLP, we represent both commercial landlords and tenants in a variety of legal matters. Call us today at 214-382-9789 and talk to a lawyer now about your real estate situation.