How to Negotiate a Commercial Lease in Texas — LOI Red Flags
A letter of intent is non-binding, but it sets the floor for the lease. These are the eight clauses that get inserted quietly in a Texas commercial LOI and matter more than the asking rate.
The asking rate gets the attention. The LOI carries the actual money.
A Texas commercial letter of intent is non-binding on most points, but landlords use it to anchor the lease that follows. Anything you don’t push back on in the LOI shows up in the draft lease with a “we already agreed to this” attached. Lawyers can clean up some of it. Most of it sticks.
These are the eight clauses I watch for in every Williamson County LOI.
1. Operating expense pass-throughs
Most Texas leases are full-service-gross (FSG) or modified-gross. Sounds clean. Then year two hits and the operating expense pass-through kicks in.
The LOI should specify the base year and whether it’s a calendar year (Jan-Dec) or lease year (anniversary). It should cap controllable expense growth at 4-6 percent per year. It should exclude capital expenses, brokerage commissions, and the landlord’s own management fee above a stated rate.
If the LOI says “tenant pays its pro-rata share of increases over base year” with no caps — push back. That’s where the real escalation lives.
2. Free rent placement
Free rent at the front of the lease is worth less than free rent in months 4-9. Cash flow matters; many tenants want to start paying after the build-out and an initial ramp.
The LOI should specify which months are abated. “Three months of free rent” with no months named lets the landlord stack them in month one when you’re still building out.
3. Tenant improvement allowance — and what counts
Texas landlords often offer TI allowances expressed as a per-SF dollar figure. The number is not the deal. The deal is what counts against it.
Push the LOI to confirm TI allowance can be applied to:
- Construction (always)
- Architectural and engineering fees (often)
- Permitting (sometimes)
- Furniture, fixtures, signage, security systems (variable)
- Rent abatement during build-out (occasionally)
If the LOI is silent, the lease will narrow the categories.
4. Commencement date trigger
“Lease commences upon delivery” sounds fine until you find out delivery means certificate of occupancy, not substantial completion. C of O can lag the work by 60-90 days in Williamson County jurisdictions, especially Round Rock and Georgetown.
Tie commencement to substantial completion or early occupancy, whichever is earlier.
5. Renewal option — terms, not just existence
A renewal option that says “at fair market rent to be determined” is a renewal option with no floor and no ceiling. You’ll re-litigate the rate.
Better: a renewal option at the lower of fair market rent or X percent escalator from then- current rent. Or a renewal at a stated rate. Or, at minimum, a defined process for determining fair market rent (broker opinion of value, baseball arbitration, etc.).
6. Holdover rent
The LOI rarely mentions it; the lease almost always sets it at 150 to 200 percent of the most recent monthly rent for tenants who stay past lease expiration. If you might extend by a month or two during a build-out at a new location, that holdover doubles or triples your rent for that period.
Negotiate it down to 110-125 percent for the first 30-60 days of holdover.
7. Personal guaranty
A landlord asking for a personal guaranty on a small Texas commercial lease is common. A landlord asking for a continuing personal guaranty that runs the entire term — including renewal options — is less reasonable.
Push for:
- A burn-off of the guaranty after 18-24 months of on-time payments
- A dollar cap on the guaranty (e.g., capped at six months of rent)
- A single-recourse structure, not joint and several across multiple guarantors
8. Assignment and subletting
If you might outgrow the space or your business might change, your ability to assign or sublet matters more than the rate. The default Texas commercial lease language often gives the landlord sole discretion — meaning they can say no for any reason.
Negotiate the LOI to specify that consent will not be unreasonably withheld and that the landlord must respond within a defined window (30 days is standard).
What to do with this
Pick the three that matter most for your business and push them hard in the LOI before focusing on the rate. The rate gets negotiated once. These clauses get negotiated for the entire term.
I represent tenants on commercial leases across Williamson County office, retail, and industrial. If you want a read on a specific LOI before you sign, send it over.