Page 8 - NBIZ Magazine June 2023

Charging Interest

and Late Fees

in Commercial Leases

By Brian Womac

recent multi-million dollar final judgment in I would like to stress the importance of commercial lease
favor of a commercial landlord and against a forms having a strongly worded interest rate provision,
tenant was up for a lengthy appeal process. The including, information on late fees. Texas law requires
A appeal would have cost both parties thousands commercial landlords to specifically spell out all possible
of dollars in additional attorneys’ fees and possibly charges in the lease contract. One would be surprised at
another two (2) years before the case would be decided. how many leases either do not specifically state the interest
The landlord wanted a quick resolution, as it took three rate that accrues on past due amounts or fail to define what
(3) years from the filing of the lawsuit to secure the amounts are subjected to the interest. If no interest rate
judgment. Would the tenant file an appeal? This partic- was negotiated between the parties and/or specifically set
ular judgment awarded the landlord 18% interest on past- out in the lease contract, the statutory rate applies. For
due amounts. That 18% interest rate found in the lease years, the statutory rate was 4.5%, but it has recently risen
contract would be the factor that ultimately would settle to 8%.
the outstanding award. The fact that the parties agreed Texas law approves interest on past due amounts as long
in the lease to award 18% interest on rents helped the as the lease spells out specifically what is being charged.
landlord. The interest does not stop accruing on the date The courts view interest after nonpayment in commercial
of the judgment, but continues per day pending payment leases as additional rent owed and not interest subject to
or during any appeal. In that particular case, that result- the usury laws. Usury is the charging of excessive interest
ed in over $1,300 per day in interest accruing on top of on a loan of money and not in regards to charging interest
the judgment amount. I believe this pre-judgment award on past due amounts found in commercial leases. Charging
factored into the decision of the tenant to not appeal the of interest on past due amounts is considered rent and
judgment. The case was settled. should be stated and defined in the lease as such.

8 NBIZ ■ June 2023