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What business tenants and landlords should know about Texas’ lockout law
In the world of commercial leases, things do not get much more aggressive or urgent than when a landlord locks a tenant out of its leased space.
An employee arrives at work to find a conspicuous notice on the door, and is unable to enter the premises. Even if access can be regained quickly, employees miss shifts and income, the tenant’s business income suffers, and its customers may be adversely affected.
Considering the effects of social media, thousands of people may quickly know about the lockout. Pictures of the required notice or posts about the lockout may linger online for years.
A commercial landlord usually has several remedies available when a tenant fails to pay rent. Such remedies may include eviction, lockout, suit for unpaid rent, and charging late payment fees. There are pros and cons to each of these actions.
A lockout can be an effective remedy for pressuring a tenant to bring rent current, but it is often also an action to which the old adage applies – just because you can, does not mean you should. It is not always the best solution for the problem of delinquent rent.
Whether it is expressly stated under the lease or not, the Texas Property Code allows a landlord to prevent a commercial tenant from entering the leased premises by “changing the door locks of a tenant who is delinquent in paying at least part of the rent.”
Unfortunately for tenants, the law provides absolutely no grace period before this right is available to the landlord. If the lease does not provide some grace period, the landlord has the right to lock a tenant out even one day after rent is delinquent.
When a landlord changes a tenant’s locks due to delinquent rent, the landlord must place a written notice on the tenant’s front door stating the name and the address or phone number of the individual or company from which a new key may be obtained. The new key must be available during the tenant’s regular business hours, upon payment of the delinquent rent.
If a landlord wrongfully locks a tenant out (in violation of the law or the lease), the tenant is entitled to recover the possession of the property (in an expedited procedure spelled out in the Property Code) or terminate the lease. The tenant can also recover reasonable attorney’s fees and court costs, as well as the greater of (1) one month’s rent, (2) $500, or (3) the tenant’s actual damages. Such recovery for the tenant will be offset against delinquent rent or other amounts the tenant owes to the landlord.
The decision to lock a tenant out should not be made lightly. It is a severe step that can have potential legal and business consequences for the landlord and the tenant.
The negative consequences to the tenant may increase the likelihood that a struggling tenant fails and/or files bankruptcy. A bankrupt tenant could ultimately leave the landlord in an even worse position or at least cause the landlord additional legal expense as a creditor in the tenant’s bankruptcy. A locked out tenant unable to pay the delinquent rent, may abandon the premises. Abandonment triggers a landlord’s duty to mitigate its losses and also specific requirements for how a landlord must deal with personal property left behind.
The importance of understanding the provisions of the lease and how they interact with the lockout laws, as well as strict compliance with the law itself, cannot be overstated. The details are important.
For example, a lockout could be found to be wrongful, and give rise to substantial liability for the landlord, if any delinquent amount owed is not properly categorized as rent under the lease or the requisite notice is insufficient or improperly located.
A prudent landlord must understand that if a lockout is found to be wrongful, the tenant’s claim for actual damages could end up being significantly more than the landlord might expect.
If the provisions of the applicable law and the lease itself are inconsistent, the provisions of the lease supersede the law. This effectively means the lease provisions may soften or remove the landlord’s remedy, or may expand on the landlord’s rights regarding lockouts.
For a tenant, it is imperative to understand the law regarding lockout since it can happen, even if not mentioned in the lease. If locking out is mentioned in the lease, a tenant should be aware that such provisions may expand the landlord’s legal rights beyond those provided in the Property Code.