Page 9 - NBIZ Magazine June 2023

The Statute on Interest For years,
Section 303.001 of the Texas Finance Code states that
“a person may contract for, charge, or receive a rate or the statutory rate was
amount that does not exceed the applicable interest rate
ceiling provided by Section 303.” Section 303 states that
the ceiling is between 18% to 28% per year depending on 4.5%
the type of contract.
According to section 304.002 of the Texas Finance
Code, the post-judgment interest and pre-judgment inter- but it has recently
est is the lesser of the interest rate specified in the con-
tract or 18% per year (Tex. Fin. Code. Ann. '304.002) (West
2016). If a lease contract does not state a rate of interest,
then the pre-judgment and post-judgment interest rates risen to 8%.
will be calculated based on the statutory rate in the Texas
Finance Code. Currently, that is 8%.
The Texas Finance Code allows parties in a commercial
lease to contract for the interest rate to be charged on
past-due rents. The typical upper limit of interest found in between waiting on a settlement or concluding a lengthy
Texas commercial leases is 18%. litigation process. There is no reason to justify lowering
the interest rate. If the tenant is going to pay late, the
The Form Language higher rate will be an incentive for the tenant to pay
Here is an example of a typical interest rate provision sooner rather than later.
found in a lease form:
Late Fees
All past due installments for Rent as well as for Late fees are another matter. Texas law approves late
any money owed for services, goods, or materials fees on past due amounts as long as the lease specifically
furnished shall bear interest at the rate of eighteen spells out what shall be charged. However, there are limits
percent (18%) per annum or the highest lawful rate, on what you can charge as late fees on past-due rents. Late
whichever is less, from the date due until paid; provid- fees should be charged at the time of the late or missed
ed, however, in no event shall the rate of interest payment. The late fee should not be charged over and over
hereunder exceed the maximum non-usurious rate again month after month on the same rent. If you charge
of interest, hereinafter called the “Maximum Rate”, late fees month after month on the past due amounts, the
permitted by the applicable laws of the State of Texas courts will find that the fee is excessive and unenforceable.
or the United States of America, and to the extent that The courts view late charges in commercial leases if
the Maximum Rate is determined by reference to the properly worded, as additional rent and not interest subject
laws of the State of Texas, the Maximum Rate shall to the usury laws. When it comes to late fees and interest
be the weekly ceiling (as defined and described in on past-due rents, I would not encourage the practice of
Chapter 303 of the Texas Finance Code, as amended) charging both late fees and interest on top of the late fees.
at the applicable time in effect. The late fee provision in one’s commercial leases should
not be a disproportionate charge to the actual damages
Rent is defined as all monetary obligations of any incurred by the landlord for the missed payment. Exces-
kind or character owed by the Tenant to the Landlord sive charges will be viewed as a penalty that is not favor-
under the terms of the Lease Agreement. able under contract law. Think of it this way, the late fee
charged should not be a penalty, but simply a reasonable
The above provision will allow the landlord to recover estimate of the landlord’s actual damages for the missed
18% interest from the date due until paid. This would payment. N
include pre-judgment and post-judgment interest. The
importance of the rate is often overlooked in lease negoti- Brian D. Womac is a licensed attorney in Texas
ations and the rate is routinely cut down to 6-8% during since 1985 celebrating 37 years of active practice in
the lease negotiation process. I recommend keeping the commercial real estate law. He has been board-certified
interest rate in your leases at 18%. in commercial real estate law for thirty (30) years (1991-
If your lease contract specifically states the rate of 2021) and has personally handled over 3,000 litigation
interest owed on past-due rents, the courts will have to matters in the State of Texas. His client base consists of
follow the lease contract. The law is clear that a trial corporations, partnerships, limited liability companies,
court does not have the discretion to award a lower lending institutions, insurance companies, investors,
interest rate that has been properly negotiated between management and leasing companies, and others owning
contracting parties. The higher rate can be the difference commercial real estate.

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