USA – TEXAS Law and Practice Contributed by: Taylor Cooksey, Philip Kinkaid, Serena Kramer and David Brooks, Cokinos | Young
Percentage Lease Under a percentage lease, a tenant pays a speci - fied percentage of its revenues as rent. The per - centage rent will usually be payable in addition to a base rental amount, which will typically be lower than in other types of leases. Percentage leases are most often seen in the retail and res- taurant sectors. 6.3 Regulation of Rents or Lease Terms Lease terms and rental amounts in commercial leases are largely unregulated in Texas and are negotiable by the parties. For residential leases, the Texas Property Code imposes certain obli - gations and restrictions on landlords, and pro - hibits discrimination in leasing, but lease terms are mostly negotiable and rental amounts are unregulated. 6.4 Typical Terms of a Lease The duration of a lease is negotiable and varies depending on the nature of the business. For office leases, three to five years is common (but ten years is not uncommon), while the duration of a ground lease will typically be 15 to 25 years or more. Renewal or extension options are also frequently included in leases. Maintenance of a tenant’s leased premises will usually be the responsibility of the tenant, although landlords will often be responsible for the maintenance of structural components and building systems within the premises. Rent is usually payable monthly in advance, although parties may negotiate for rent to be payable quarterly or annually. 6.5 Rent Variation Rent may remain the same throughout a lease’s term, or the parties may negotiate for it to peri - odically escalate 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 simi - lar 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 pay - ing to maintain and repair common areas. How - ever, 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 usu - ally be required to contract directly with utility and telecommunications providers. For multi- tenant properties, landlords will generally con - tract for utilities and charge tenants for their usage. However, tenants may be required to
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