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commercial property lease

A business that leases real estate and improvements (buildings, etc.) in the form of space for offices, a warehouse, a restaurant, a nail or hair salon, a clothing store, a coffee shop, or other commercial (nonresidential) space will usually be required to sign a written contract known as a commercial lease agreement.

The tenant (the business occupying the space) who signs a commercial lease agreement is generally expected to be a more savvy, sophisticated, and informed tenant (also known as a lessee) than a tenant in a residential lease, and the law usually does not provide a commercial tenant with the same protections as residential tenant receives.

Because the law does not provide a commercial tenant with as many protections, it is up to the commercial tenant to read, understand, and negotiate protections in a proposed lease agreement before signing it, as most every paragraph in a commercial lease agreement can have a significant impact on a business’s operations and financial stability.

The law governing commercial leases varies from state to state but generally consists of a state's contract law (as applied to the lease agreement)—and in some states, includes the statutes enacted by the state's legislature that specifically apply to commercial tenancies, or that generally apply to both residential and commercial tenancies.

In Texas, a commercial lease agreement is a binding contract between a landlord and a business tenant for the rental of nonresidential property, such as office space, warehouses, or retail locations. Unlike residential tenants, commercial tenants are considered more knowledgeable and are expected to negotiate the terms of their leases. Texas law does not provide the same level of statutory protection to commercial tenants as it does to residential tenants. Therefore, it is crucial for a business entering into a commercial lease to thoroughly review and understand the terms of the lease, as these terms can significantly affect the business's operations and financial health. The regulation of commercial leases in Texas is primarily governed by state contract law, and while there may be some statutes that address commercial tenancies specifically, the protections are not as extensive as those for residential leases. It is often advisable for a business to consult with an attorney to negotiate favorable lease terms and to ensure that their rights are protected before signing a commercial lease agreement.


Texas Statutes & Rules

Federal Statutes & Rules

Americans with Disabilities Act of 1990 (ADA) - 42 U.S.C. § 12101 et seq.
The ADA is relevant to commercial leases as it imposes accessibility requirements on public accommodations, which can include businesses that lease commercial spaces.

The Americans with Disabilities Act (ADA) prohibits discrimination against individuals with disabilities in all areas of public life, including jobs, schools, transportation, and all public and private places that are open to the general public. Title III of the ADA specifically covers public accommodations and services operated by private entities and requires that businesses open to the public remove architectural barriers where such removal is readily achievable. If a business leases a property that is considered a public accommodation, such as a restaurant or retail store, the lease agreement may need to include provisions for compliance with ADA standards. This can involve modifications to the physical space to ensure accessibility for individuals with disabilities. The responsibility for these modifications can be a point of negotiation between the landlord and tenant and should be clearly outlined in the commercial lease agreement.

Bankruptcy Code - 11 U.S.C. § 101 et seq.
The Bankruptcy Code can impact commercial leases if a tenant declares bankruptcy, affecting the rights and obligations of both the tenant and the landlord.

Under the Bankruptcy Code, when a business tenant files for bankruptcy, an automatic stay is imposed that temporarily prevents creditors, including landlords, from pursuing collection actions. This can affect the enforcement of a commercial lease agreement. The tenant, as a debtor-in-possession, may assume or reject unexpired leases, subject to court approval. If the tenant decides to reject the lease, the landlord may have a claim for damages, but these are often limited under bankruptcy law. Additionally, the tenant may be able to assign the lease to a new party, even if the lease contains a clause prohibiting assignment, provided certain conditions are met. Landlords should be aware of these provisions when entering into a commercial lease agreement, as they can significantly impact their rights in the event of a tenant's bankruptcy.

Real Estate Settlement Procedures Act (RESPA) - 12 U.S.C. § 2601 et seq.
While RESPA primarily applies to residential real estate transactions, certain aspects may be relevant to commercial leases, particularly when they involve a residential component or certain types of financing.

The Real Estate Settlement Procedures Act (RESPA) requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. RESPA also protects borrowers by prohibiting certain practices, such as kickbacks, and places limitations on the use of escrow accounts. Although RESPA is primarily focused on residential real estate transactions, some of its provisions could apply to mixed-use properties or to commercial transactions that include a residential component. Additionally, if a commercial lease involves financing that could fall under the purview of RESPA, compliance with the act may be necessary. It is important for parties involved in commercial leases to understand if and how RESPA might apply to their transaction.

Uniform Commercial Code (UCC) - Article 2A Leases
The UCC Article 2A provides a framework for leases of personal property, which can be relevant to commercial leases that include equipment or other non-real estate items.

The Uniform Commercial Code (UCC) is a comprehensive set of laws governing commercial transactions in the United States. Article 2A of the UCC deals specifically with leases of goods. While it does not directly govern real estate leases, it is relevant for commercial leases that include the leasing of equipment or other personal property. Article 2A outlines the rights and obligations of the lessor and lessee regarding personal property and provides guidance on issues such as lease formation, warranties, default, and remedies. Commercial tenants and landlords should be aware of the UCC's provisions when their lease agreements include personal property to ensure that these aspects of the lease are legally sound and enforceable.