TEXAS ANNOTATED OFFICE LEASE THOMAS M. WHELAN, Dallas McGuire Craddock & Strother State Bar of Texas 35 TH ANNUAL ADVANCED REAL ESTATE LAW COURSE July 11-13, 2013 San Antonio CHAPTER 22
1. DEFINITIONS.... 2 (a) Additional Rent... 2 (b) Base Rent... 6 (c) Base Year... 6 (d) Base Year Operating Costs... 6 (e) Building.... 7 (f) Building Standard.... 8 (g) Commencement Date and Scheduled Commencement Date... 9 (h) Common Areas... 10 (i) Effective Date... 11 (j) Electricity Costs... 12 (k) Excess Operating Costs... 13 (l) Expiration Date.... 15 (m) Guarantor.... 15 (n) Land... 15 (o) Landlord Work... 16 (p) Landlord Parties... 16 (q) Operating Costs... 17 Operating Costs exclude: (i) Electricity Costs... 20 (ii) Real Estate Taxes... 20 (iii) Margin Tax Costs... 21 (iv) leasing, advertising, and promotional costs... 21 (v) any rental and any associated costs... 21 (vi) relocation or takeover expenses... 21 (vii) real estate brokerage commissions... 21 (viii) attorneys fees... 21 (ix) any costs incurred renovating space for other occupants... 21 (x) costs incurred to provide non Building Standard services... 21 (xi) costs incurred to furnish goods for which Tenant (xii) would be requred toreimburse Landlord... 21 costs incurred for which (i) Landlord [actually receives] is entitled to reimbursement above Base Rent... 21 (xiii) costs incurred for Landlordʹs general corporate overhead... 22 (xiv) costs incurred for executive compensation... 22 (xv) costs incurred for political, charitable, or similar organizations... 22 (xvi) costs associated with operating the entity constituting Landlord... 22 (xvii) costs incurred for Landlordʹs leasing agents... 22 (xviii) costs of any art work... 22 (xix) all compensation paid to clerks managing commercial concessions... 22 22-i
(xx) costs associated with operating any parking structure... 22 (xxi) costs of i any specialty service or amendity... 23 (xxii) costs incurred as a result of any Landlord Party s breach of any contractual, statutory, tort, or other legal duty... 23 (xxiii) costs, penalties, and fines incurred by Landlord... 23 (xxiv) penalties and interest on late payments... 23 (xxv) payments to affiliates of Landlord that exceed market charges... 23 (xxvi) contributions to reserves... 23 (xxvii) legal, auditing, consulting and professional fees... 23 (xxviii) payments of principal, interest, defeasance charges... 24 (xxix) depreciation and amortization of capital improvements or additions... 24 (xxx) costs incurred to remediate Hazardous Substances... 24 (xxxi) costs to correct or repair design or construction defects... 24 (xxxii) costs of LEED certification and other Green initiatives.... 24 (xxxiii) capital expenses.... 24 Landlord and Tenant also agree that Operating Costs will be net only... 24 (r) Parking Fees.... 25 (s) Permitted Use... 25 (t) Premises.... 25 (u) Project... 26 (v) Real Estate Taxes... 26 Real Estate Taxes exclude: (i) federal and state taxes on income... 27 (ii) penalties, late fees,... 27 (iii) any special or benefit assessment... 27 (iv) any tax on the financing or transfer... 27 (v) ad valorem and other taxes on any tenant s personal property... 27 (vi) Texas Margin Tax... 27 (w) Rent... 28 (x) Rentable Area... 28 (y) Rules and Regulations... 28 (z) Security Deposit i.... 28 (aa) Service Areas.... 28 (bb) Tenant Parties.... 29 (cc) Tenantʹs Pro Rata Share.... 29 (dd) Term... 29 (ee) Trade Fixtures... 29 2. LEASE GRANT... 30 3. RENT.... 31 (a) Payment and Proration Base Rent and Additional Rent..... 32 22-ii
(i) Electronic Payments.... 32 (ii) Other Payments.... 32 (iii) Change of Payment Address.... 32 (b) Excess Operating Costs; Tax Costs; Electricity Costs.... 32 (c) Apportionment of Operating Costs; Adjustments.... 32 (d) Audit Rights.... 33 (e) Late Payment.... 34 4. SECURITY DEPOSIT.... 34 (a) Landlor s Use of Security Deposit.... 34 (b) Return of Security Deposit.... 36 (c) Standby Letter of Credit in lieu of Security Deposit.... 36 5. USE..... 38 (a) Prohibited Uses.... 39 (b) Floor Loads.... 39 (c) Compatible Use.... 39 (d) Parking.... 39 6. ENTRY BY LANDLORD.... 40 7. BASIC SERVICES.... 40 (a) hot and cold water... 41 (b) heat or air conditioning (HVAC)... 41 (c) routine maintenance of electric lighting... 41 (d) janitorial service.... 41 (e) exterior window washing... 41 (f) nonexclusive passenger elevator service.... 41 (g) nonexclusive freight elevator service.... 41 (h) light and fluorescent bulb replacements... 41 (i) access control devices... 41 8. ELECTRICAL SERVICES.... 42 9. SERVICE TERMS.... 43 10. GRAPHICS.... 44 11. IMPROVEMENTS BY LANDLORD.... 44 12. MAINTENANCE AND REPAIR BY LANDLORD.... 44 13. MAINTENANCE, REPAIRS, AND ALTERATIONS BY TENANT.... 47 14. MECHANIC S LIENS..... 49 15. ASSIGNMENT AND SUBLETTING.... 49 16. TENANT S INSURANCE.... 54 (a) General Liability Insurance.... 55 (b) Workers Compensation and Employer Liability Coverage..... 58 (c) Property Insurance.... 59 (d) Business Income and Extra Expense Coverage.... 60 22-iii
(e) Policy Forms and Additional Requirements... 60 (f) Evidence of Property Insurance... 61 17. LANDLORD S INSURANCE..... 61 18. INDEMNITIES AND WAIVERS.... 63 (a) Definitions.... 64 (i) Beneficiary... 64 (ii) Claims... 64 (iii) Defend... 64 (iv) Indemnify.... 64 (v) Injury.... 64 (vi) Waive... 65 (b) Tenantʹs Performance Indemnities.... 65 (c) Tenantʹs Indemnities for its Insurable Injuries.... 65 (d) Landlordʹs Indemnities.... 65 (e) Waivers.... 65 19. LIMITATIONS OF LANDLORDʹS LIABILITY..... 67 20. CASUALTY DAMAGE.... 67 21. CONDEMNATION... 69 22. SUBORDINATION..... 70 23. ESTOPPEL CERTIFICATES.... 71 24. DEFAULT.... 72 (a) Tenant fails to pay where and when due any Base Rent, or any component of Additional Rent.... 72 (b) Tenant does not vacate the Premises... 73 (c) Tenant or any Guarantor becomes insolvent... 73 (d) Tenant or any Guarantor: commits an act of bankruptcy... 73 (e) A receiver or trustee is appointed... 74 (f) Tenant s leasehold estate is taken in execution.... 74 (g) The liquidation, termination, dissolution, forfeiture of Tenant s right to do business.... 74 (h) Tenant fails or refuses to deliver any instrument required... 74 (i) Tenant fails to comply with any other term of this Lease... 74 (j) Tenant fails to take possession of and occupy the Premises.... 74 (k) Tenant abandons, deserts, or vacates a substantial portion of the Premises.... 76 25. REMEDIES... 77 (a) Terminate this Lease... 78 (b) Terminate Tenantʹs right to occupy all or any part of the Premises.... 79 (c) Recover unpaid Rent and any Damages... 79 (d) Change or pick the locks.... 79 (e) Remove and store (at Tenantʹs sole cost) any property on the Premises.... 80 22-iv
(f) Sue for eviction... 81 (g) Apply the Security Deposit... 81 (h) Cure Tenantʹs Default... 81 (i) Withhold or suspend any payment to Tenant... 81 (j) Withhold or suspend any service... 81 (k) Charge interest at the Default Rate... 81 (l) Recover Liquidated Rental Damages... 82 (m) Exercise all other remedies available to Landlord... 82 26. MITIGATION.... 84 27. EXPIRATION, TERMINATION, SURRENDER, AND HOLD OVER.... 85 28. TENANT REMEDIES.... 87 29. QUIET ENJOYMENT... 87 30. RESERVATIONS BY LANDLORD.... 89 31. TRANSFERS BY LANDLORD..... 89 32. TAXES ON TENANTʹS PROPERTY..... 89 33. SUBSTITUTION OF SPACE..... 90 (a) Relocation Space Requirements.... 90 (b) Relocation Concessions..... 90 (c) Effects of Relocation..... 90 34. TENANTʹS AUTHORITY..... 90 35. BUILDING RULES AND REGULATIONS.... 91 36. COMPLIANCE WITH APPLICABLE LAWS..... 91 (a) Hazardous Materials.... 91 (b) Contamination... 91 (c) Tenant will not bring, any Hazardous Material on the Project.... 92 (d) Tenant will Indemnify Landlord from Contamination caused in whole or in part by any Tenant Partyʹs act or omission... 92 (e) Landlord may inspect the Premises to... monitor compliance with Applicable Laws.... 92 (f) Landlord has no knowledge, of any Hazardous Materials on the Project... 92 37. AMERICANS WITH DISABILITIES ACT AND TEXAS ARCHITECTURAL BARRIERS ACT.... 93 38. TELECOMMUNICATIONS.... 94 39. LANDLORDʹS LIEN..... 96 40. NOTICES.... 97 41. MISCELLANEOUS.... 98 (a) Entire Agreement; Amendments.... 98 (b) Attorneysʹ Fees.... 99 (c) Commissions.... 99 (d) Construction.... 100 (e) Force Majeure.... 101 22-v
(f) Joint And Several Liability..... 101 (g) No Merger.... 102 (h) Nondisclosure.... 102 (i) Recording..... 102 (j) Disclaimer of Representations and Warranties..... 102 (k) Severability.... 103 (l) Successors.... 103 (m) Waivers..... 104 (i) Tax Appraisals & Protests..... 107 (ii) Notices.... 107 (iii) DTPA..... 108 (iv) Jury Trial.... 109 42. EXHIBITS AND RIDERS.... 110 APPENDICES Appendix I App. I A App. I B App. I C App. I D App. I E Appendix II App. II A App. II B Appendix III Appendix IV Appendix V Pass Through Provisions 8. Additional Rent 9. Operating Expense Definition 10. Taxes; Rent Taxes 11. Payments 11. Management Fee Calculation Repair, Maintenance, Surrender & Casualty As Is Waiver (aka Italian Cowboy Rider)r Repair & Maintenance Clause Mitigation List of 2013 ISO CGL Form Revisions Short Form Subordination of Landlord s Lien 22-vi