When entering into an agreement, it is important to understand its terms and provisions. Some agreements contain provisions that fundamentally affect the nature of the parties’ contractual relationship. One such provision is an “as-is” provision, which provides that the acquiring party takes the subject property in the condition it is in. An “as-is” provision can potentially have a profound effect on a party’s rights and obligations, and as such, should be identified and considered carefully when determining whether to enter into an agreement.

In Richard Uribe v. Briar-Ridge, LLC, the Thirteenth Court of Appeals was faced with a case in which a tenant, Uribe, leased a commercial building from Briar-Ridge, the landlord, to open a restaurant. Because the property required some upgrades, the parties negotiated and incorporated its remodeling as part of the lease agreement. Briar-Ridge agreed to contribute a fixed amount of money to remodeling costs, abate rent for five months, include an option to purchase, and assume certain maintenance and repair obligations. Uribe on the other hand, agreed to pay the remainder of remodeling costs, pay rent for sixty months, pay property taxes and insurance premiums during the same period, and to assume other maintenance and repair obligations. The commercial lease agreement also contained an “as-is” provision, stating that “[Uribe] has inspected the leased premises and accepts it in its present (as-is) condition…”

Uribe hired a contractor to remodel the commercial space. The remodel took much longer than anticipated and ended up costing more than what was originally estimated. Uribe claimed that during the remodel, undisclosed defects were discovered in the property’s structure, and that under the terms of the lease, Briar-Ridge was responsible for such repairs. In response, Briar-Ridge argued that it satisfied all its obligations under the lease and that Uribe was responsible for completing the remodel, including paying overages.

Uribe filed a lawsuit against Briar-Ridge and Briar-Ridge countered, inter alia, that Uribe leased the premises “as-is.” The trial court agreed.  On appeal, the Thirteenth Court of Appeals affirmed the trial court’s judgment and found that Briar-Ridge did not fail to disclose structural deficiencies because the lease contained an “as-is” provision. Further, the Court found that Uribe was given ample opportunity to inspect and that he did not exercise ordinary care since he did not conduct a reasonable inspection. The Court reasoned that an “as-is” provision in a commercial lease agreement puts a prudent tenant on notice that a careful inspection is necessary. As such, the Court affirmed the trial court’s judgment.

As the Uribe case and several other Texas cases have recently demonstrated, “as-is” provisions are important and legally significant risk transfer mechanisms. Before entering into a commercial contract, it is advisable to review the contract’s terms and conditions, and develop a list of additional documents or inspections needed to determine whether the risk you are assuming is greater than the reward you are to receive.

The attorneys is our Austin and Dallas are available to answer any questions you may have about “as is” clauses or other risk shifting provisions in contracts. Please contact us at info@gstexlaw.com.

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