Not Unconscionable to Make Defaulting Tenant Pay Costs of Remodeling Premises

What Happened: Eighteen months after signing a five-year lease, a rug store went into liquidation, stopped paying rent, and abandoned the premises. The landlord then divided the space into two separate units, leasing one to another rug store and the other to a bath floor décor shop. It also sent the original rug store tenant a bill for $125,563.55 to cover its costs in remodeling the space, citing the section of the lease stating that in the event of default, tenants would be liable for “the cost of repairing, altering, remodeling, or otherwise putting the Premises into a condition acceptable to such [new] tenant or tenants.” The tenant claimed the clause was unconscionable to the extent it allowed the landlord to completely redo the premises “to the subjective liking of new tenants.” The trial court sided with the landlord, and the tenant appealed.  

Ruling: The Texas appeals court upheld the ruling that the remodeling clause wasn’t unconscionable.

Reasoning: The landlord-tenant relationship involves certain risks that may be assigned between the parties, the court reasoned. One risk, which actually happened in this case, is that the tenant will stop paying rent and abandon the premises, leaving the landlord with the need to find new tenants and remodel the space to fit their needs. There’s nothing “inherently unconscionable” in assigning these costs to the tenant since its default was what made them necessary. Besides, the court added, there was no evidence supporting the tenant’s claim that the landlord had a “completely lopsided” advantage in bargaining power. And the claim that the landlord would take advantage of the clause to make gold-plated improvements at the tenant’s expense overlooked the landlord’s duty to mitigate its damages.  

• Parvizian Fine Oriental Rugs, Inc. v. Eclectic Design, LP, 2023 Tex. App. LEXIS 8146, 2023 WL 7034055