Don't Use Residential Lease Form for Commercial Space

Don't use a residential lease form if you're renting commercial space to a tenant, advises Houston attorney John S. Hollyfield. Always use a commercial lease form instead, he says. Even if you attempt to change the residential lease form into a commercial lease, you run the risk of inadvertently leaving in residential rental property concepts that could hurt you or leaving out necessary or desirable commercial lease provisions. Residential rental property laws are often more favorable to tenants than commercial rental property laws, notes Hollyfield.

For example, a Texas owner rented a house to a tenant to use as a law office. The parties used a pre-printed residential lease form and made handwritten changes to turn it into a commercial lease. But the lease form said that “Chapter 92 of the Texas Property Code,” which applies only to leases of residential properties, would control the parties' security deposit obligations. After the lease ended, the owner returned part of the security deposit to the tenant, but deducted certain cleaning and repair costs. The tenant sued for the return of the rest of the security deposit, saying Chapter 92 didn't permit those deductions. The owner argued that Chapter 92 didn't apply to a lease of commercial property.

A Texas appeals court ruled that the owner had to refund the rest of the security deposit because Chapter 92 applied. The parties were entitled to select the terms of their lease—even residential property terms. The lease's security deposit clause was conspicuous and the parties made handwritten changes to it, indicating that they were aware of it and intended to include it in the lease, the court said. The court wouldn't rewrite the lease simply because the owner disliked the application of one of its provisions [Cotter v. Tobey].

CLLI Sources

John S. Hollyfield, Esq.: Of Counsel, Fulbright & Jaworski L.L.P., 1301 McKinney, Ste. 5100, Houston, TX 77010-3095; 713-651-5151; jhollyfield@fulbright.com.