Locating Lease Space for your Business in Texas: Things to Consider when searching for Commercial Lease Space

When searching for commercial lease space there many things to take into consideration such as, just to name a few, expenses, the lease term, parking and permitted uses and restrictions.

The total monthly cost of the lease is usually the primary concern for tenants and is determined by the type of lease you agree to.  There are two main types of leases – gross leases and triple net leases. Under a gross lease the tenant pays a set amount specified in the lease agreement while the landlord pays for all of the operating costs.  Under a triple net lease the tenant pays the set amount specified in the lease agreement plus its pro rata share of the operating expenses, which may include repair costs, insurance premiums, taxes, and utilities.  It is important for the tenant to determine up front what the anticipated expenses will be and understand that expenses could increase for various reasons such as maintenance issues or increases in taxes or utility rates.  There are also ‘hybrid’ leases that combine elements of the gross and triple net lease.

Many commercial leases will contain a personal guaranty, which means that the individuals signing the lease are also agreeing to be personally liable for all amounts due under the lease agreement.  Even though your business entity is the tenant, you will be personally responsible for the rent as well.  Some landlords may negotiate with prospective tenants if they can show a good rental history or are willing to put up collateral.

Most commercial lease space will need to be altered in some way to meet your needs, or in other words, the space will need to be “finished-out.”  The cost of finish-out may be paid by the landlord, may be the tenant’s sole responsibility, or the landlord may provide the tenant with a budget, and any extras will be charged to the tenant.  It is also important to determine whether the landlord requires that you use certain contractors for finish-out.

Other concerns will depend on the type of business you intend to operate.  Prospective tenants need to ensure there are no restrictions against operating their type of business, and they may want to ask the landlord for a restriction against other businesses similar to yours in the future to prevent competition from moving in next door.  You may need reserved parking or a sign; prospective tenants should determine in advance what they will need to operate their business and ensure the landlord will address these issues.

While commercial leases can be long and confusing, it is important to read and fully understand the lease agreement to ensure the space will meet your business needs and to prevent problems for years to come.

Prepared by Eric Rupe.  Edited by Sarah Berry, Attorney

Why do Texas businesses incorporate in other states?

Many businesses benefit from incorporation. Limited liability, an unlimited lifespan, and various tax breaks are advantages every corporation enjoys. All incorporation, however, is not created equal. Every state has its own laws governing the formation and operation of corporations.

A business may incorporate in any state it chooses, regardless of where it is physically located. It should come as no surprise, then, to learn that many businesses are incorporated out of state in order to take advantage of another state’s business laws. Of all such states, none has proven more alluring to corporations than Delaware. Nearly a million business entities have legal foundations in Delaware, and that includes over half of all the Fortune 500 corporations.

Why Delaware? There are three major reasons. First, its laws are among the least restrictive to corporate decision making. For example, while many states, including Texas, require a two-thirds shareholder vote to affect most extraordinary corporate transactions, Delaware requires only a simple majority. Second, its courts are viewed as efficient and sophisticated in the area of corporate law and finance. Perhaps Delaware’s most distinct advantage is its Court of Chancery, which can date its existence back to 1792. Over the years this court has compiled well-recorded case law in corporate matters. Combined with the fact that judges rather than juries sit as the decision makers, corporations have ample confidence in the courts of Delaware. Third, the public sentiment is generally pro-corporation. People and elected officials understand that a substantial amount of the state budget comes from fees and taxes associated with businesses incorporated there, so state laws are geared towards maintaining this reputation.

If you think this is why Texas businesses incorporate in other states, you are only partially right. In reality, many do not incorporate elsewhere. For smaller or purely local businesses, there are several reasons to incorporate right here in Texas. Perhaps the biggest reason is that businesses incorporated out of state must qualify as “foreign corporations” where they do business. Since there are fees and taxes associated with this process, it often becomes more of a financial burden than benefit for smaller businesses to incorporate out of state. Another reason is that businesses incorporated in Delaware can be subject to lawsuit there. As a result, business owners may be hauled into a courtroom hundreds of miles away from their place of business (and residence for that matter). Finding a lawyer locally licensed in Delaware, or familiar enough with Delaware corporations to advise on corporate structure changes (or the expense of hiring Delaware counsel in addition to Texas counsel), is also a reason to register locally and form under Texas laws.

It is also important to understand that Texas is arguably among the three most corporate friendly states in America (Delaware and Nevada being the other two). Texas and Nevada business laws are very similar to those of Delaware, if not preferable in many instances. Perhaps the only thing lacking in both Texas and Nevada is corporate confidence in the courts. Over time, however, it would not be surprising to hear one ask the question, “Why do so many businesses incorporate in Texas?”

**This article was prepared by Matt Lloyd, and edited by Chloe Love.