It is hardly unusual for tenants to require special licenses to conduct their business, in addition to Certificates of Occupancy and zoning compliance. Bars need liquor licenses from the Texas Alcoholic Beverage Commission. Banks need licenses from the Texas Department of Banking or similar federal authority. Racetracks require licenses from The Texas Racing Commission. Chiropractors must have licensure from the Texas Board of Chiropractic Examiners.
1. Failure to explicitly allocate the risk of licensure is a common problem in commercial leasing. If a tenant is unable to secure its license, it might assert a position of “frustration of purpose,” meaning that if the tenant cannot open or continue its business due to matters outside of its control, perhaps it should not remain liable for lease obligations.
2. Landlords, conversely, may insist that Landlord was not operating the business inside the four walls. It’s tenant’s business and there is no one better than tenant to process the applications, overcome objections and secure necessary licensure.
3. The B/L: In your Lease Agreements provide for not only how the premises will be used, but if it is subject to special licensure to be obtained by tenant and tenant is unable to obtain the license, or perhaps tenant secures the license but not for the duration of the lease term, then also state what happens in those circumstances too. Does the tenant remain liable? For the full remainder of the term? Is there an exit strategy for the tenant where it can terminate the Lease by payment of a set amount?
Stuart A. Lautin, Esq.*
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.