Commercial Lease Disputes in Texas: Rights of Landlords and Tenants

What makes commercial lease disputes different

Texas treats a commercial lease as a contract between businesses. The Legislature wrote most tenant protections for residential tenants in Chapter 92 of the Property Code. Commercial tenancies sit in Chapter 93, which is short, and Chapter 93 expressly lets the lease override its lockout rule. The result is that two tenants in the same building can have very different rights because their leases were negotiated differently.

So the first step in any commercial lease dispute is the same for landlord and tenant: read the whole lease, including the exhibits, amendments, the guaranty and any estoppel certificate signed later. Most fights are won or lost on a clause someone did not read carefully.

The most common disputes

• Unpaid rent and default. The tenant falls behind, the landlord weighs a lockout, an eviction, or a lawsuit for the rent. The landlord's choices are covered in what a landlord can do when a commercial tenant stops paying.
• Operating expenses and CAM charges. The reconciliation arrives and the tenant disputes what was passed through, the cap, or the audit right.
• Repairs, HVAC and the condition of the space. Who must fix what, and whether the tenant may withhold rent or repair and deduct. In a commercial lease the answer is almost always in the lease, not in a statute.
• Early exit. The tenant's business shrinks or moves and it wants out before the term ends.
• Renewals and holdovers. Was the option exercised on time and in the right form, and what does a holdover tenant owe.
• Build-out and tenant improvement allowances. Delays, unpaid allowances and disputes about the condition at delivery.
• Assignment and subletting. Whether consent was unreasonably withheld and whether a sale of the tenant's business counts as an assignment.
• Personal guaranties. The business fails and the landlord turns to the owner who signed.

What the lease controls

In a Texas commercial lease the following questions are almost always answered by the document, and courts enforce the answer as written when it is unambiguous:

• How many days late the tenant may be before a default exists, and whether the landlord must send a notice and give time to cure.
• Whether the landlord may accelerate the remaining rent, relet the space, or both.
• Whether the tenant may withhold rent for the landlord's breach. Most leases say no.
• Who pays attorney's fees. Many leases give fees to the prevailing party; without such a clause, Chapter 38 of the Civil Practice and Remedies Code allows fees to a party who wins a breach of contract claim against an individual or a company that meets its requirements.
• Notice addresses, methods and deadlines. A notice sent to the wrong address or by the wrong method can undo an otherwise valid default.
• Waiver of jury trial, choice of venue and whether disputes go to arbitration.

What the Property Code decides no matter what the lease says

A few rules survive any drafting:

• Duty to mitigate. Under Property Code § 91.006 a landlord must mitigate damages when a tenant abandons the premises in violation of the lease, and a clause that waives that duty is void. The details, and what counts as reasonable mitigation, are in whether a commercial landlord must mitigate damages.
• Security deposits. Property Code § 93.005 requires the landlord to refund the deposit within 60 days after the tenant surrenders the premises and gives a forwarding address. Under § 93.011 a landlord who in bad faith keeps the deposit owes $100, three times the amount wrongfully withheld and the tenant's attorney's fees, and a landlord who misses the 60-day deadline is presumed to have acted in bad faith.
• Eviction procedure. If the landlord wants a court to remove the tenant, Chapter 24 of the Property Code and Rule 510 of the Texas Rules of Civil Procedure set the notice, the court and the timetable. The lease may change the notice period but not the court process. See how commercial eviction works in Texas.
• Lockouts. Property Code § 93.002 allows a landlord to change the locks of a tenant who is delinquent in rent, with a required notice on the door, and bars cutting utilities or removing doors and fixtures. The lease can alter this section where the two conflict. The full rule is in whether a commercial landlord can lock out a tenant.

Remedies for a landlord

A landlord whose tenant is in default can usually choose among several remedies, and the lease often lets the landlord pursue more than one. The typical menu is: a lockout under § 93.002; an eviction suit for possession in justice court; a lawsuit in county or district court for unpaid rent, future rent less what reletting brings in, and costs of reletting; a claim against the guarantor; and applying the security deposit to what is owed. Each has a different speed and a different risk. A lockout is fast but exposes the landlord to damages if done wrong. An eviction returns the space but does not by itself collect the debt. A damages suit collects but takes longer and must account for mitigation.

Remedies for a tenant

A tenant's position depends on whether the landlord has breached and whether the lease allows a self-help response. Common tenant claims are breach of the covenant of quiet enjoyment, constructive eviction when the premises become unusable through the landlord's fault, wrongful lockout under § 93.002(g), failure to return the deposit, and breach of specific repair, delivery or exclusive-use promises.

Two cautions apply to tenants. First, Texas law does not imply a right to withhold rent in a commercial lease, so a tenant who stops paying because the roof leaks usually becomes the party in default. Second, a tenant who leaves early is still liable for the rent the landlord cannot recover through reasonable reletting. The tenant's options are set out in the guide on whether a business can break its commercial lease, linked below.

Which court, and how long you have

Possession alone is decided in the justice court for the precinct where the property sits. That court cannot decide title and does not hear counterclaims. Claims for rent, damages, deposit penalties, wrongful lockout damages and guaranty liability are filed in county court at law or district court depending on the amount, or in arbitration if the lease requires it. In Dallas County that means the civil district courts or the county courts at law downtown.

A suit for breach of a written lease is a contract claim and must be filed within four years of the breach under Civil Practice and Remedies Code § 16.004. The lease cannot shorten that period below two years, and many leases do not address it at all.

Example

Suppose a Dallas restaurant tenant stops paying in March after a kitchen fire that it blames on the building's wiring. The landlord locks the tenant out in April without posting the notice § 93.002 requires. The tenant sues for wrongful lockout and lost profits; the landlord counterclaims for unpaid rent for the remaining 30 months of the term. Under the lease, the tenant had no right to withhold rent, so it is in default. But the landlord skipped the statutory notice, so the tenant has a claim for actual damages or one month's rent, whichever is greater, plus fees. And the landlord's claim for 30 months of rent is reduced by whatever a reasonable effort to relet would have produced. Both sides have exposure, which is why these cases are often resolved by a negotiated termination rather than a judgment.

Evidence that decides these cases

• The signed lease, every amendment, the guaranty and any estoppel or SNDA certificates.
• Every default notice with proof of how and when it was delivered.
• The rent ledger and the CAM reconciliations with their backup.
• Photographs and dated reports on the condition of the space, repair requests and responses.
• Emails and texts between the property manager and the tenant. Informal messages often show a waiver or an agreement to a payment plan that the formal notices contradict.
• For landlords, the marketing record after a tenant leaves: listings, showings, offers, and why any were declined.

When to involve a litigator

Before a lockout, before a notice of default is sent, and before a tenant stops paying or moves out. Each of those steps is hard to reverse, and each one is governed by the lease's notice provisions as much as by the statute. A litigator who reads the lease first can tell a landlord which remedy fits the goal, whether that is possession, money or a clean exit, and can tell a tenant whether it has a real breach claim or only a grievance. Tina Wysk represents landlords and tenants in commercial lease disputes in Dallas state and federal courts and in arbitration; the firm's real estate litigation practice covers lease, purchase and title disputes.