USA – TEXAS Law and Practice Contributed by: Taylor Cooksey, David Brooks, Serena Kramer and Philip Kinkaid, Cokinos | Young
6.5 Rent Variation Rent may remain the same throughout a lease’s term, or the parties may negotiate for it to periodically esca - late during the term, often based on an inflation index or operating costs, or by an agreed percentage. 6.6 Determination of New Rent The most common methods for determining rent increases are fixed percentage increases, adjustments based on changes on an inflation index, and increases in market or appraised rental value, which is typically determined by a procedure negotiated between the parties when the lease is initially executed. 6.7 Payment of VAT Texas does not impose VAT or substantially similar tax on rents. 6.8 Costs Payable by a Tenant at the Start of a Lease Tenants in Texas will usually pay a security deposit (typically equal to one month’s rent) at the beginning of a lease. Depending on the financial strength of the tenant, a landlord may also require one or two months of pre-paid rent and/or operating expenses (if the lease is a net lease). 6.9 Payment of Maintenance and Repair A landlord will generally be responsible for paying to maintain and repair common areas. However, a tenant under a net lease is required to reimburse the landlord for the tenant’s pro rata share of those costs. 6.10 Payment of Utilities and Telecommunications For single-tenant properties, the tenant will usually be required to contract directly with utility and tel - ecommunications providers. For multi-tenant proper - ties, landlords will generally contract for utilities and charge tenants for their usage. However, tenants may be required to contract directly for specified utilities
ity, or the landlord may be required to pay taxes and then seek reimbursement from the tenant. For multi-tenant properties, landlords will be respon - sible for the payment of applicable real estate taxes, but tenants will usually be required to reimburse their pro rata share. 6.12 Insurance Issues Tenants in single-tenant buildings are usually required to carry property insurance covering physical damage to the premises, and liability insurance, which pro - vides financial protection if the tenant is found liable for injury or damage to people or property. In multi-tenant buildings, landlords will carry property insurance, although it is often not actually a lease obligation, while tenants will be required to carry liability insurance covering their premises and may be required to carry property insurance insuring their personal property within the premises. Commercial tenants in Texas have largely been unable to recover damages attributable to COVID-19 under business interruption insurance policies, as most business interruption insurance policies only covered losses resulting from interruption of business caused by a direct physical loss or damage to covered prop - erty. Several recent cases have found that COVID-19 did not cause a direct physical loss or damage to property. 6.13 Restrictions on the Use of Real Estate Landlords may and usually do impose restrictions on how a tenant may use its premises, by specifying the tenant’s permitted use in the lease and prohibiting the tenant from using the premises for any other purpose without the landlord’s consent. Restrictive covenants (ie, private restrictions on the use of real property often imposed by a developer or property owner) and local zoning laws also limit how a tenant may use its prem - ises. 6.14 Tenant’s Ability to Alter and Improve Real Estate Tenant alteration rights are freely negotiable in Texas and typically vary depending on the type of premises and/or lease. For a ground lease, a tenant may be
and/or telecommunications services. 6.11 Payment of Property Taxes
A tenant of a single-tenant property will typically be responsible for paying the real estate taxes applicable to the property. This may be accomplished by the ten - ant agreeing to pay taxes directly to the taxing author -
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