Houston Business & Commercial Law Blog

Investors at all levels have opportunities to enter the commercial real estate market. According to the National Association of Realtors, 2018 has been a strong year for growth, especially in Houston and Dallas-Fort Worth. Growing employment has contributed to demand for commercial properties in multiple sectors. The long-term leases that are typical among commercial tenants help to protect owners from low occupancy rates and establish consistent cash flow.

Many niches exist within the commercial market, and investors can choose properties that match their skills and interests or are performing well in their region. For example, coin-operated car washes or laundromats work well for an owner with mechanical expertise or a relationship with a mechanical company that can maintain the equipment. Storage unit buildings attract investors who want to avoid high operating and maintenance costs. Flexible warehouse spaces represent another type of building that an owner could market toward businesses ranging from microbreweries to technology startups.

Some people in Texas who work in construction or development may be familiar with contract disputes over buildings. In California, such a dispute has gone to court as the contractor that built the Salesforce Transit Center and Transbay Transit Center, Webcor/Obayashi Joint Venture, filed a lawsuit in the San Francisco Superior Court on Oct. 17 for $150 million against the Transbay Joint Powers Authority.

The project has been plagued with problems. The transit center went over budget and took longer to build than scheduled. After its completion, support beams developed cracks, and the building remains closed. This suit is unrelated to those cracks and claims that TJPA is trying to avoid paying its bill by blaming WOJV for costs, delays and more and that TJPA would not lengthen the contract despite knowing why the problems were happening.

An entrepreneur in Texas may find that owning the building in which their business is housed can be beneficial in many ways. However, someone interested in buying a commercial building should take time to consider their options and ask pertinent questions.

The business owner should consider whether the option they are pursuing provides a functionality that is suited for their company. This includes verifying if there is a functional layout, sufficient space and the right amenities. The potential buyer should know exactly how much electrical power, space, clear height and parking area will be needed for the business to function properly. Whether or not the site is able to accommodate overhead cranes and have ample enough storage and a sufficient electrical power grid for machinery may also be factors to consider.

It is often possible to mitigate risk in the future with careful contract drafting. Clearly-defined agreements, fairness and good communication help parties avoid Texas construction contract disputes. Among the ways contracts can be used to mitigate future risk are by clarifying unallowable labor, defining change order reporting, setting rates and caps on equipment and including bidding procedures.

It's easier to manage the cost of a construction project when there are well-defined unallowable and allowable labor rates. This depends on whether labor costs are based on predetermined rates or actual wages. All parties should understand what rates are billed to and associated with a particular project. If the contract language is not clear on this point, disputes may arise.