Commercial property in Texas is bought on negotiated contracts, not state-promulgated forms, and the buyer carries most of the risk of what it fails to discover. The due diligence period is where a buyer learns whether the title is clean, whether the survey matches the legal description, whether the site has environmental history, whether the zoning or deed restrictions permit the intended use, and whether the leases and tenants are what the seller represented. A Texas commercial real estate attorney structures that diligence, negotiates the contract that governs it, and turns the findings into title objections, price adjustments, or a timely termination.
Holmes Law is the practice of Michael Holmes, an attorney licensed in Texas who represents buyers of commercial and investment property remotely throughout the state, including small investors, family businesses, and buyers using a 1031 exchange. This page covers the Texas-specific issues that shape a commercial acquisition. It is part of the Texas real estate practice and is general information, not legal advice about any particular transaction.
Commercial Contracts in Texas
The Texas Real Estate Commission promulgates forms for residential and farm-and-ranch transactions, but not for commercial property. Commercial deals are typically documented on forms published by Texas REALTORS for improved or unimproved commercial property, on a lawyer-drafted purchase and sale agreement, or on the seller’s own form. Each approach allocates risk differently, and the printed commercial forms leave many blanks and options that have real consequences.
Key terms to negotiate in any Texas commercial contract include:
- The feasibility or inspection period, the buyer’s right to terminate during it, and whether the earnest money becomes non-refundable when it ends.
- The list of seller deliverables (leases, rent roll, service contracts, environmental reports, surveys, tax bills, operating statements) and the deadline to deliver them.
- Title and survey objection periods and the seller’s cure obligations.
- Seller representations and warranties, how long they survive closing, and any cap on liability.
- Conditions to closing, including tenant estoppels, lender approval, zoning confirmations, and third-party consents.
- Default remedies for both sides, including whether the buyer can seek specific performance.
- Allocation of closing costs, prorations of rents and operating expenses, and the handling of property tax protests in progress.
Texas Commercial Real Estate Attorney: Due Diligence Checklist
Title and survey
In Texas, title insurance forms and premium rates are promulgated by the Texas Department of Insurance. A buyer should review the title commitment and every exception document, not only the Schedule B list. Easements, restrictive covenants, reciprocal easement agreements, mineral reservations, and unreleased liens all appear there. The standard survey exception can generally be amended with an adequate survey, and a commercial buyer usually orders a current ALTA/NSPS land title survey tailored to the property with the optional items the lender and title company need.
Texas has a well-developed body of mineral law, and the mineral estate is often severed from the surface. The accommodation doctrine recognized in Getty Oil Co. v. Jones, 470 S.W.2d 618 (Tex. 1971), gives the mineral owner reasonable use of the surface, subject to accommodating an existing surface use in some circumstances. For rural or suburban commercial sites, a buyer should understand who owns the minerals, whether there are existing leases or pipelines, and whether surface-use restrictions or title endorsements are available.
Mechanic’s liens
Texas mechanic’s and materialman’s liens under Property Code chapter 53 can relate back to the commencement of work, which means a lien filed after closing can in some cases have priority based on work that began before closing. Chapter 53 was substantially revised effective January 1, 2022. Where there has been recent construction or tenant improvement work, a buyer should review lien affidavits, bills paid affidavits, and the title company’s requirements, and consider holdbacks.
Broker liens
Property Code chapter 62 gives a commercial real estate broker a lien for an earned commission on commercial real estate, with its own notice, recording, and escrow procedures. A buyer’s title commitment may reflect a recorded broker’s lien, and the statute provides a mechanism for escrowing disputed amounts so the transaction can close.
Environmental Due Diligence in Texas
Federal law supplies the framework. Under CERCLA, a buyer who performs “all appropriate inquiries” before acquiring the property, typically through a Phase I Environmental Site Assessment performed under ASTM E1527-21, and who satisfies continuing obligations, may qualify for the bona fide prospective purchaser defense. A Phase I that identifies recognized environmental conditions may lead to a Phase II investigation involving sampling.
Texas adds its own programs and agencies:
- The Texas Commission on Environmental Quality (TCEQ) administers the state superfund program under the Solid Waste Disposal Act, Health and Safety Code chapter 361, and maintains records a buyer should search.
- TCEQ’s Voluntary Cleanup Program, Health and Safety Code chapter 361, subchapter S, allows a site to be remediated under state oversight. A certificate of completion under § 361.609 releases future owners and lenders who were not responsible parties from liability to the state for the contamination addressed, under § 361.610.
- TCEQ’s Innocent Owner/Operator Program is designed for owners whose property is contaminated by a release that migrated from an off-site source, and can provide a certificate that is useful in financing and resale.
- TCEQ’s Petroleum Storage Tank program regulates underground and aboveground storage tanks, which are common at former service stations, fleet yards, and industrial sites.
- The Railroad Commission of Texas, not TCEQ, regulates oil and gas wells, pipelines, and related contamination, and operates its own voluntary cleanup program for sites under its jurisdiction.
Texas does not impose a general statutory environmental disclosure duty on commercial sellers comparable to the residential Seller’s Disclosure Notice. That puts the burden on the buyer to investigate and to negotiate representations, access rights, and remedies in the contract.
Zoning, Platting, and Land Use
Texas cities zone under Local Government Code chapter 211 and control subdivision and platting under chapter 212. Houston is the notable exception, relying instead on deed restrictions and city ordinances that regulate development without conventional use zoning. Counties generally have no zoning authority in unincorporated areas, although they regulate subdivisions and some specific uses.
Cities in Texas also exercise platting authority in their extraterritorial jurisdiction (ETJ). Senate Bill 2038, passed in 2023, created procedures for landowners in some circumstances to petition or vote for release from a city’s ETJ, and its application has been the subject of litigation. A buyer planning development near a city boundary should confirm the current status of the land.
Diligence should include a zoning verification letter or report, a review of certificates of occupancy, parking and signage compliance, the plat, deed restrictions, and any development agreements, and for older buildings, accessibility and building-code issues that may need to be addressed.
Leases, Estoppels, and SNDAs
For income-producing property, the leases are the asset. A buyer should read every lease and amendment rather than rely on a summary, and compare them to the rent roll. Watch for rights of first refusal or offer, purchase options, co-tenancy clauses, exclusive-use rights, early termination rights, and landlord obligations for tenant improvements or allowances that remain unpaid.
Tenant estoppel certificates confirm the lease terms, rent, deposits, and absence of defaults, and they bind the tenant as to the facts stated. Lenders usually require subordination, non-disturbance, and attornment agreements (SNDAs), and the leases determine whether tenants must sign them. Property Code § 93.007 provides that the new owner of commercial property is liable for returning security deposits from the date title is acquired, and the prior owner remains liable until the new owner delivers a written acknowledgment of responsibility for the deposits, so the closing documents should transfer deposits and document that acknowledgment.
Buying the Property or Buying the Entity
A buyer can acquire the real estate directly or acquire the entity that owns it. Texas has no state real estate transfer tax, so the transfer-tax savings that drive entity deals in some states are absent here. The decision instead turns on other factors:
- An entity purchase inherits the entity’s liabilities, known and unknown, which calls for more extensive corporate diligence and indemnities.
- Title insurance does not automatically carry over; a buyer may need a non-imputation endorsement or a new policy.
- Existing loans often prohibit a change of control without lender consent.
- Texas franchise tax and the entity’s history of compliance with the Comptroller become the buyer’s concern.
- Contracts, permits, and licenses held by the entity may be easier to keep in place, but some contain change-of-control provisions.
In an asset purchase, the buyer should also consider Tax Code § 111.020. When a business is sold, the purchaser must withhold enough of the purchase price to cover taxes owed by the seller to the Comptroller, such as sales tax, until the seller provides a receipt or a certificate that no tax is due. A purchaser who fails to withhold can become liable for the seller’s unpaid taxes up to the purchase price. This applies most often when real estate is bought together with an operating business.
Buying Property as Part of a 1031 Exchange
Buyers using a like-kind exchange under Internal Revenue Code § 1031 are acquiring replacement property on the federal deadlines: identification within 45 days of the relinquished property’s transfer and acquisition within 180 days (or the due date of the tax return, if earlier). The contract should state that the buyer is completing an exchange, require the seller’s reasonable cooperation, and allow assignment to a qualified intermediary. Because Texas has no personal income tax, there are no Texas state income tax considerations on the exchange itself, although buyers exchanging out of states with income taxes may have tracking or reporting obligations in those states. The seller side of an exchange is covered on the Texas commercial sales page.
Financing a Texas Commercial Purchase
Most Texas commercial loans are secured by a deed of trust, which allows non-judicial foreclosure under Property Code § 51.002, with sales generally held on the first Tuesday of the month after statutory notice. Lenders commonly require an assignment of leases and rents, a UCC security interest in personal property, guaranties, environmental indemnities, and title and survey requirements that must be satisfied before funding.
Loan documents deserve review for recourse carve-outs, transfer restrictions, reserves, cash management, and prepayment terms such as yield maintenance or defeasance. Texas usury law in Finance Code Title 4 applies to commercial loans, and loan documents routinely contain savings clauses. Seller financing, loan assumptions, and mezzanine structures each carry their own documentation and diligence.
Property Taxes and Closing
Texas taxes commercial property locally based on appraisal district values. Texas does not require public disclosure of sale prices, which is one reason appraisal district values can diverge from market value. The contract should allocate the current year’s taxes by proration, address any pending protests and refunds, and deal with rollback taxes under Tax Code § 23.55 if agricultural or open-space valuation will be lost because of the buyer’s change of use. The protest deadline under Tax Code § 41.44 is generally May 15 or 30 days after the appraisal notice is delivered, whichever is later, so a buyer closing in spring should coordinate with the seller.
Closing is typically handled by a title company. The buyer should review the settlement statement, prorations of rent and common-area maintenance reconciliations, assignment of leases and contracts, the bill of sale for personal property, tenant notice letters, and the deed, which in commercial deals is most often a special warranty deed.
How Holmes Law Helps Commercial Buyers
Holmes Law assists buyers of Texas commercial and investment property, including:
- Drafting or reviewing the purchase contract, letter of intent, and amendments.
- Managing the title and survey review and preparing objection letters.
- Coordinating environmental diligence and interpreting Phase I findings with the environmental consultant.
- Reviewing leases, estoppels, SNDAs, and the rent roll.
- Advising on entity-versus-asset structure and on the entity that will hold title, working with the Texas business law practice.
- Reviewing loan documents and closing documents.
Buyers of residential rental property with one to four units should also see the Texas residential purchase page, since those transactions usually use the TREC forms.
Frequently Asked Questions
Does Texas have a transfer tax on commercial property?
No. Texas has no state real estate transfer tax or deed stamp. Closing costs in a Texas commercial deal consist mainly of title premiums, survey and diligence costs, lender charges, and prorations.
Is a Phase I environmental report required in Texas?
No statute requires one for a private sale, but most lenders require it, and a Phase I that meets the federal “all appropriate inquiries” standard is necessary to preserve the federal bona fide prospective purchaser defense. TCEQ and Railroad Commission records are part of a thorough Texas review.
What is a tenant estoppel certificate?
It is a signed statement from a tenant confirming the lease documents, rent, deposit, term, and whether the landlord is in default. It protects a buyer and lender by preventing the tenant from later asserting facts inconsistent with the certificate.
Should I buy the property or the company that owns it?
It depends on the liabilities of the entity, the existing loan, the title insurance position, and the business goals. Texas has no transfer tax, so there is usually less tax incentive to buy the entity than in some other states.
What happens to tenant security deposits when I buy?
Under Property Code § 93.007, the buyer becomes liable for commercial tenants’ deposits from the date title is acquired, so the buyer should receive a credit for them at closing and sign the required acknowledgment.
Can a buyer walk away during the feasibility period?
Under most Texas commercial forms and negotiated contracts, yes, if the buyer gives notice before the period ends. The contract controls whether any part of the earnest money is kept by the seller.
Speak With a Texas Commercial Real Estate Attorney
The feasibility period is short, and the diligence that protects a commercial buyer has to be organized from day one. If you are considering a Texas commercial or investment property, contact Holmes Law to schedule a consultation with Michael Holmes before you sign a letter of intent or contract.