Untitled Texas Attorney General Opinion

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

August 8, 2016

The Honorable Angie Chen Button Opinion No. KP-0106
Chair, Committee on Economic and
Small Business Development Re: Whether and to what extent limitations
Texas House of Representatives exist on the Texas Facilities Commission's
Post Office Box 2910 ability to renew leases for space under
Austin, Texas 78768-2910 section 2167.055 of the Government Code
(RQ-0095-KP)

Dear Representative Button:

You ask whether and to what extent limitations exist on the Texas Facilities Commission's
ability to renew leases for space under section 2167 .055 of the Government Code. 1 You state that
the Legislature is exploring ways to lower operating costs for office space for state agencies outside
of Austin and the Capitol Complex. Request Letter at 1. You ask specifically about obtaining
agency office space through long-term office projects with private developers. Id. You note that
under section 2167.055 of the Government Code, the Texas Facilities Commission (the
"Commission") may enter into leases for up to ten years with renewal options. Id. You ask
whether there is "any limitation on how early the option can be executed and if multiple options
may be executed concurrently." Id.

The Commission is a state agency authorized to lease space from non-state entities for
tenant agencies. TEX. Gov'T CODE§§ 2167.0011, .002, .007, .052, .055. The Commission may
do so only if "(1) state-owned space is not otherwise available to the agency; and (2) the agency
has verified it has money available to pay for the lease." Id. § 2167.002(a). In a lease contract
under section 2167.055, the State, acting through the Commission, is the lessee, and the
Commission's obligation to accept leased space is binding on the Commission upon execution of
the lease contract. Id. § 2167.055(a), (f). Such a lease contract may "(1) provide for an original
term that does not exceed 10 years; and (2) include options to renew for as many terms that do not

1
See Letter from Honorable Angie Chen Button, Chair, House Comm. on Econ. & Small Bus. Admin., to
Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Feb. 6, 2016), https://www.texasattomeygeneral.gov/opinion/requests-
for-opinion-rqs ("Request Letter").
The Honorable Angie Chen Button - Page 2 (KP-0106)

exceed 10 years each as the commission considers to be in the state's best interest." Id.
§ 2167.055(c). 2

As the Texas Supreme Court has observed, "[t]he State has the right to contract, unless
restricted or limited by the Constitution.· The subjects of contract, the length of term for which a
contract may be made, and the general policy relating to contracts, are clearly within the power of
the Legislature." Tex. Nat'! Guard Armory Bd v. McCraw, 126 S.W.2d 627, 637 (Tex. 1939).
We consider first your question of whether there are any limitations on how early a renewal option
may be exercised under section 2167.055. Request Letter at 1.

A lessee's right to exercise an option to renew the lease is generally governed by the
option's provisions and, therefore, the existence of any limitations will depend in part on the terms
of the renewal option. See Zeidman v. Davis, 342 S.W.2d 555, 558 (Tex. 1961); see also
Mohammed v. D. 1050 W Rankin, Inc., 464 S.W.3d 737, 745 (Tex. App.-Houston [1st Dist.]
2014, no pet.) ("A party to an option contract may enforce that option by strict compliance with
the terms of the option."). Typically, a lease agreement will require the lessee to take steps to
exercise a renewal option in advance of the date the primary term expires. See, e.g., Zeidman, 342
S.W.2d at 556-58 (requiring notice six months in advance of the end of the primary term). 3 Section
2167.055 authorizes a primary term that does not exceed ten years and renewal terms that do not
exceed ten years, but it does not address when the Commission may exercise a lease option. TEX.
Gov'T CODE § 2167.055. We are not aware of any statutory or common-law limitation on how
early an option may be exercised if authorized by a lease option's provisions. 4

Your second question is whether multiple renewal options may be exercised concurrently.
Request Letter at 1. Subsection 2167.055(c) expressly authorizes multiple renewal options but
does not address whether the Commission may at one time exercise two or more renewal options.
TEX. Gov'T CODE § 2167.055(c). We are not aware of any statutory or common-law principle
that would generally preclude exercising the options at the same time, if the lease provisions so
allow. But subsection 2167.055(c) specifically states that each renewal option may not exceed ten
years. See id. A lease provision that, for example, allows the Commission to simultaneously
exercise two ten-year options is essentially a twenty-year option that is not permitted by

2 Partiesto a lease that does not contain a renewal option may renew the lease "under terms to which all parties
to the contract agree." TEX. Gov'T CODE§ 2167.055(d).

3
See also Brief from Harvey Hilderbran, Exec. Dir., Tex. Facilities Comm'n, to Virginia K. Hoelscher, Chair,
Op. Comm., Office of the Att'y Gen. at 2-3 n.4 (Feb. 17, 2016) ("TFC Brief') (stating that the Commission's standard
lease contains a provision requiring the lessee to give "written notice of intention to exercise [an] option at least 180
days prior to expiration of the lease").

4 We assume your question contemplates a lease option agreement in which the primary term and the renewal

term remain distinct. We do not suggest that section 2167.055 allows the parties to simply convert their lease to a
primary term exceeding ten years.
The Honorable Angie Chen Button - Page 3 (KP-0106)

subsection (c). Thus, a court would likely conclude that options may be exercised concurrently
only if their terms in the aggregate do not exceed ten years. 5

5
Structuring a long-term lease requires consideration of constitutional provisions that limit the State's
authority to incur contractual obligations, such as the provisions prohibiting the creation of state debt and limiting
appropriations to no more than two years. See TEX. CONST. art. III, § 49 (prohibiting the creation of state debt), art.
VIII,§ 6 (prohibiting appropriations beyond two years); see generally Tex. Nat'! Guard Armory Bd, 126 S.W.2d at
63 7 (noting that the duration of a state contract may raise potential constitutional issues but stating that"[ o ]bligations
that run current with revenues are not debts within the contemplation of the Constitution"). The Commission must
ensure that the State's leases conform to these constitutional limitations whether the lease is in the primary term or a
renewal term. See TEX. Gov'T CODE§ 2167.055(e) (requiring any lease be made "contingent on the availability of
money appropriated by the legislature to pay for the lease"); TFC Brief at 2-3 n.4 (explaining that the Commission's
standard lease provisions specifically state that the lease is "subject to the provisions of the Texas Constitution," make
the lease "contingent upon the continuation of the availability of money appropriated by the legislature," and grant
the Commission the right to assign, sublet, or terminate the lease as required in certain circumstances).
The Honorable Angie Chen Button - Page 4 (KP-0106)

SUMMARY

Section 2167.055(e) of the Government Code does not limit
how early the Texas Facilities Commission may exercise a lease
renewal option nor does it address whether the Commission may
exercise multiple renewal options at the same time. A court would
likely conclude that the Commission may concurrently exercise
more than one renewal option in a lease provided that the terms of
the options in the aggregate do not exceed ten years.

Very truly yours,

~?~
KEN PAXTON
Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

BRANTLEY STARR
Deputy First Assistant Attorney General

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

WILLIAM A. HILL
Assistant Attorney General, Opinion Committee