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.
But in some states courts have recognized an implied warranty against latent defects (defects not easily visible) in commercial leases. Courts that have recognized this implied warranty against latent defects in commercial leases have generally called it an “implied warranty of fitness or suitability for purpose” (the purpose being the tenant’s intended use) or “implied warranty against latent defects” and defined it to include:
• persistent water leaks through the roof, ceiling, or walls
• serious defects in the sewer or drainage systems
• inadequate or defective heating, ventilation, and air conditioning (HVAC), electrical, security, fire and smoke alarm, or other essential system, or
• latent physical or structural defects.
The implied warranty of fitness or suitability for purpose can generally be waived in the written lease agreement.
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 business that leases commercial space such as offices, warehouses, or retail locations will enter into a commercial lease agreement. Unlike residential tenants, commercial tenants are considered more knowledgeable and are expected to negotiate the terms of their leases, as they are not afforded the same legal protections. Texas law does not provide as many safeguards for commercial tenants, so it is crucial for them to thoroughly review and understand the lease agreement before signing. While some states recognize an implied warranty against latent defects in commercial leases, Texas does not have a statutory implied warranty of fitness or suitability for a commercial lease. However, Texas courts may recognize some common law protections against latent defects. It is important for tenants to be aware that any such warranty can typically be waived in the lease agreement. The regulation of commercial leases in Texas is primarily governed by state contract law and may also be influenced by specific statutes related to commercial tenancies.
