Selling commercial property in Texas is as much about limiting what happens after closing as it is about getting to closing. The seller’s representations, the “as is” language, the survival period for claims, the liquidated damages clause, tenant rights of first refusal, lender prepayment terms, and the tax structure of the sale all determine how much of the purchase price the seller actually keeps. A Texas commercial real estate attorney helps sellers negotiate those terms, organize the disclosures a sophisticated buyer will demand, and close cleanly.
Holmes Law is the practice of Michael Holmes, an attorney licensed in Texas who represents sellers of commercial, investment, and mixed-use property remotely throughout the state. This page explains the Texas law and practice that most affect commercial sellers. It is part of the Texas real estate practice and is general information rather than legal advice about any particular sale.
What a Texas Commercial Seller Must Disclose
The Texas Seller’s Disclosure Notice under Property Code § 5.008 applies to residential property with a single dwelling unit, not to commercial property. Texas has no general statutory disclosure form for commercial sales. That does not mean a seller can say nothing and bear no risk. Texas law still recognizes claims for common-law fraud, fraud by nondisclosure where a duty to speak exists, statutory fraud in real estate transactions under Business and Commerce Code § 27.01, and negligent misrepresentation. And specific statutes require specific notices, such as the notice for property in a municipal utility district under Water Code § 49.452 and notices tied to public improvement districts and coastal property.
In practice, the disclosures a commercial seller makes are defined by the contract. The buyer will ask for a list of due diligence materials, and the seller’s delivery of those materials, together with its representations, determines the seller’s exposure. A careful seller delivers what it has, avoids characterizing documents it did not prepare, and makes clear that third-party reports are provided without warranty.
Seller Representations, “As Is,” and Survival
Negotiating representations
A commercial buyer will ask the seller to represent that it has authority to sell, that there is no pending litigation or condemnation, that the rent roll and leases are accurate, that there are no undisclosed service contracts, that the seller has received no notices of code or environmental violations, and that it is not a foreign person. Sellers should knowledge-qualify representations where appropriate, identifying whose knowledge counts, and should limit representations to matters within the seller’s control.
The “as is” clause and disclaimer of reliance
Texas enforces “as is” clauses in arm’s-length commercial transactions. In Prudential Insurance Co. of America v. Jefferson Associates, Ltd., 896 S.W.2d 156 (Tex. 1995), the Texas Supreme Court held that a buyer who agrees to take property “as is” generally cannot recover for the property’s condition, because it agreed to rely on its own judgment, unless the buyer was fraudulently induced to agree to the clause or the seller concealed information or obstructed inspection. The court later held in Italian Cowboy Partners, Ltd. v. Prudential Insurance Co. of America, 341 S.W.3d 323 (Tex. 2011), that a general merger clause is not enough to bar a fraudulent inducement claim; the parties must clearly and specifically disclaim reliance on representations outside the contract. Sellers should make sure the contract contains a specific disclaimer of reliance as well as “as is” language.
Survival and caps
Representations should survive closing for a defined period, with claims required to be brought within that period, and the seller’s post-closing liability should be capped. A basket or minimum claim threshold is common in larger transactions. These provisions are enforceable in Texas when clearly drafted, but they do not protect against fraud.
Liquidated Damages and Default Remedies
Most Texas commercial contracts provide that if the buyer defaults, the seller’s sole remedy is to keep the earnest money as liquidated damages. Texas courts enforce liquidated damages when the harm caused by the breach is difficult to estimate and the amount is a reasonable forecast of just compensation: Phillips v. Phillips, 820 S.W.2d 785 (Tex. 1991). In FPL Energy, LLC v. TXU Portfolio Management Co., 426 S.W.3d 59 (Tex. 2014), the Texas Supreme Court also considered whether the liquidated amount was unreasonable in light of the actual damages, and refused to enforce a provision that operated as a penalty. Sellers should set the earnest money at a level that reflects the real cost of taking the property off the market.
Buyers commonly ask for specific performance if the seller defaults. A seller can often limit the buyer to either specific performance or a refund of the earnest money plus a capped amount of out-of-pocket expenses. Texas law requires a buyer seeking specific performance to show it was ready, willing, and able to perform: DiGiuseppe v. Lawler, 269 S.W.3d 588 (Tex. 2008).
Taxes and Withholding on a Texas Commercial Sale
Texas has no state real estate transfer tax, no deed excise tax, and no personal income tax, so there is no Texas withholding on a nonresident seller. A seller that is a business entity should consider the Texas franchise tax effect of the gain, which depends on the entity type and its franchise tax situation, and should work with a CPA.
Federal rules still apply. Under the Foreign Investment in Real Property Tax Act, a buyer must generally withhold 15 percent of the amount realized from a foreign seller unless an exception or IRS withholding certificate applies. The title company will request a non-foreign certification from the seller.
When real estate is sold together with an operating business, Tax Code § 111.020 requires the purchaser to withhold enough of the purchase price to cover the seller’s unpaid state taxes until the seller provides a Comptroller receipt or a certificate that no tax is due. Sellers can avoid a closing delay by requesting that certificate early.
Selling Relinquished Property in a 1031 Exchange
A seller who plans to defer gain under Internal Revenue Code § 1031 must arrange the exchange before closing on the relinquished property. The seller assigns its rights under the sale contract to a qualified intermediary, the buyer’s funds go to the intermediary rather than to the seller, and the seller then has 45 days to identify replacement property and 180 days (or the tax return due date, if earlier) to acquire it. Receipt of the sale proceeds, even briefly, can disqualify the exchange.
The contract should permit assignment to a qualified intermediary and require the buyer’s reasonable cooperation at no cost or liability to the buyer. Sellers who hold title in an LLC or partnership should confirm that the same taxpayer will acquire the replacement property, since a restructuring near closing can create problems. Because Texas does not tax personal income, Texas itself does not impose a clawback or tracking requirement on exchanges, although a replacement property in another state may be subject to that state’s rules.
Tenant Rights of First Refusal and First Offer
Before listing, a seller should review every lease for a right of first refusal (ROFR), right of first offer (ROFO), or purchase option. A ROFR usually requires the seller to present a bona fide third-party offer to the tenant and give the tenant a period to match it. A ROFO usually requires the seller to offer the property to the tenant before marketing it. Failing to honor these rights can expose the seller to a claim for damages or specific performance and can cloud the buyer’s title.
The seller should document the tenant’s waiver or failure to exercise, and the buyer’s title company will often require a recorded waiver or estoppel. Rights of first refusal in reciprocal easement agreements, declarations, and joint venture agreements should also be checked.
Leases survive the sale. Property Code § 93.007 makes the new owner of commercial property liable for returning security deposits from the date it acquires title, but the seller remains liable until the buyer delivers a written acknowledgment of responsibility for the deposits. A seller should require that acknowledgment at closing, along with an assumption of the landlord’s obligations under the leases.
Bulk Sales and Successor Liability
Texas repealed its version of UCC Article 6, so there is no general bulk sales notice procedure for sales of inventory and equipment. Successor liability issues arise instead through specific statutes, most importantly the state tax withholding rule in Tax Code § 111.020, and through contract. Buyers of an operating business may also ask about unemployment tax experience and other obligations that can transfer to a successor. A seller should expect the buyer to request tax clearance and should build the time to obtain it into the closing schedule.
Existing Financing, Prepayment, and Defeasance
Most sellers pay off their loans at closing. The loan documents control how. Many commercial loans include a prepayment premium, yield maintenance formula, or lockout period. Securitized (CMBS) loans often cannot be prepaid at all during much of the term and must instead be defeased, meaning the borrower substitutes a portfolio of government securities that replicates the loan payments. Defeasance involves a defeasance consultant, the loan servicer, rating agency requirements, and significant lead time.
Alternatively, a buyer may assume the existing loan, which requires lender approval, underwriting of the buyer, and fees. The purchase contract should state which path applies, allocate the costs, and give the parties time to complete it.
Broker Commissions and Liens
Property Code chapter 62 gives a broker who has earned a commission under a written agreement a lien on commercial real estate, subject to the chapter’s notice and recording requirements. A broker’s lien recorded before closing will appear as a title requirement, and chapter 62 provides a procedure to escrow the disputed amount so the sale can close. Sellers should confirm their listing agreements are clear on who is owed what, including any co-broker, and whether a commission is owed on a sale to a tenant or a party introduced before the listing.
Property Taxes, Prorations, and Closing Deliverables
Texas property taxes are assessed locally and paid in arrears, so at closing the seller normally credits the buyer for the seller’s share of the current year’s taxes. In a multi-tenant property, the analysis is more involved: if tenants reimburse taxes and operating expenses through common-area maintenance charges, the contract should say how the year’s reconciliation will be handled after closing, who collects delinquent rent that relates to the period before closing, and how a pending appraisal protest or refund will be shared. Because Texas does not require public disclosure of sale prices, a seller who is protesting its appraisal should consider how the protest interacts with the sale and who controls it after closing.
If the land has agricultural or open-space special valuation and the buyer’s intended use will end it, rollback taxes under Tax Code § 23.55 become due, and the contract should allocate them clearly. Sellers should also gather the closing deliverables early: the special warranty deed, bill of sale, assignment and assumption of leases, assignment of service contracts and warranties, tenant notice letters, updated rent roll, original leases, keys and access codes, entity authority documents, and a non-foreign affidavit. Missing deliverables are a common reason commercial closings slip.
Texas Commercial Real Estate Attorney: How Holmes Law Helps Sellers
Holmes Law represents Texas commercial sellers in:
- Negotiating letters of intent and purchase contracts, including representations, “as is” and disclaimer-of-reliance language, survival periods, and caps.
- Assembling due diligence deliverables and responding to title and survey objections.
- Reviewing leases for rights of first refusal, first offer, and purchase options, and obtaining waivers and estoppels.
- Coordinating 1031 exchange documentation with the qualified intermediary and the seller’s CPA.
- Reviewing loan payoff, prepayment, and defeasance requirements.
- Preparing closing documents, including the special warranty deed, bill of sale, assignment of leases and contracts, and tenant notice letters.
Sellers who own the property through an LLC or partnership may also need to address the entity’s governing documents and owner approvals, which the Texas business law practice handles. Buyers should see the Texas commercial purchase page, and sellers of one-to-four-unit residential property should see the Texas residential sales page.
Frequently Asked Questions
Does a Texas commercial seller have to fill out a disclosure form?
No statutory condition disclosure form applies to commercial property. But Texas fraud and misrepresentation law still applies, certain statutory notices may be required, and the contract usually requires the seller to deliver documents and make representations.
Will an “as is” clause protect me?
Generally, yes, in an arm’s-length commercial transaction, as long as the seller did not fraudulently induce the buyer to agree to it or conceal information. Pair it with a specific disclaimer of reliance to reduce fraudulent inducement risk.
Is there a transfer tax or state withholding when I sell in Texas?
No. Texas has no state transfer tax and no personal income tax withholding. Federal FIRPTA withholding may apply to foreign sellers, and Tax Code § 111.020 withholding may apply when a business is sold.
Can I keep the earnest money if the buyer defaults?
Most commercial contracts make the earnest money the seller’s liquidated damages. Texas courts enforce that if the damages were hard to estimate and the amount was a reasonable forecast, and not a penalty compared to actual damages.
What if my tenant has a right of first refusal?
You generally must comply with it before selling to a third party. The lease terms control how the right is triggered and how long the tenant has to respond. Get a written waiver or documented non-exercise before closing.
How long does defeasance take?
It depends on the loan servicer and the defeasance process, and it typically requires advance notice under the loan documents. Start the process as soon as a sale is likely rather than after the contract is signed.
Speak With a Texas Commercial Real Estate Attorney
A commercial sale is negotiated in the letter of intent and the first contract draft. If you are preparing to sell Texas commercial or investment property, contact Holmes Law to schedule a consultation with Michael Holmes before terms are set.