How early and how many lease renewal options can the Texas Facilities Commission exercise for state office space?

Plain-English summary

Representative Angie Chen Button, who chaired the Texas House committee on economic and small business development, asked the AG about the Texas Facilities Commission's authority to renew leases for state office space. The Legislature was looking at ways to lower operating costs for agencies housed outside Austin and the Capitol Complex, including long-term office projects built with private developers. Government Code section 2167.055 lets the Commission sign leases of up to ten years with renewal options, and the representative had two specific questions: is there a limit on how early a renewal option can be exercised, and can multiple options be exercised at the same time?

On the first question, the AG concluded the statute is silent on timing. Section 2167.055 sets a ten-year cap on the primary term and a ten-year cap on each renewal term, but it does not say when the Commission may exercise an option. Whether an option can be exercised early therefore turns on what the particular lease says. The AG was not aware of any statutory or common-law rule that would block exercising an option early when the lease's own provisions allow it.

On the second question, the AG concluded that multiple options can be exercised concurrently, but with a ceiling. Nothing in the statute or common law generally prevents exercising more than one option at once if the lease allows it. The limit comes from the ten-year-per-renewal cap: exercising two ten-year options at the same moment would effectively create a single twenty-year option, which the statute does not permit. So a court would likely allow concurrent exercise only when the combined option terms add up to ten years or less.

Currency note

This opinion was issued in 2016. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. Government Code chapter 2167 governing the Texas Facilities Commission's leasing authority may have been amended since this opinion issued, so confirm the current text of section 2167.055 before relying on the caps and rules described here.

What the opinion meant for those who asked

The requesting legislator and the Legislature (as the opinion described it): The opinion answered both questions the representative posed. It told the Legislature that section 2167.055 places no limit on how early the Commission may exercise a renewal option, leaving timing to the lease terms, and that the Commission may exercise more than one renewal option concurrently only if the options' terms in the aggregate do not exceed ten years.

The Texas Facilities Commission (as the opinion described it): The opinion confirmed the Commission's leasing power runs through section 2167.055, which permits a primary term of up to ten years plus renewal options of up to ten years each. It read the ten-year-per-renewal cap as the binding limit on stacking options, and it noted, by way of the Commission's own brief, that the Commission's standard lease already requires written notice of intent to renew at least 180 days before expiration and ties the lease to the availability of appropriated money.

Private developers and landlords contracting with the State (as the opinion described it): The opinion described how an option's timing is governed by the option's own provisions, and it flagged that long-term state leases must conform to the constitutional limits on creating state debt and on appropriations beyond two years, which the Commission's contingent-on-appropriations lease language is designed to satisfy.

Common questions

Can the Texas Facilities Commission renew a state office lease early?
As the opinion read section 2167.055, yes, if the lease allows it. The statute does not set a deadline for exercising a renewal option, so the timing depends on the lease's own provisions, and the AG identified no statutory or common-law rule against early exercise where the lease permits it.

Can the Commission stack two ten-year renewal options into a twenty-year lease?
No. The opinion explained that each renewal term is capped at ten years, so exercising two ten-year options at once would amount to a single twenty-year option the statute does not allow. Concurrent exercise is permissible only when the combined terms do not exceed ten years.

Does the ten-year cap apply to renewal terms as well as the original term?
Yes. Section 2167.055 limits the original term to no more than ten years and limits each renewal term to no more than ten years. The opinion treated that per-term cap as the controlling limit on how options may be combined.

Do long-term state leases raise constitutional concerns?
The opinion noted in a footnote that structuring a long-term lease requires attention to the constitutional provisions limiting state debt (article III, section 49) and appropriations beyond two years (article VIII, section 6), and that obligations running current with revenues are not "debts" within the meaning of the Constitution. The Commission's standard leases are made contingent on appropriated money to stay within those limits.

Background and statutory framework

The Texas Facilities 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). It may do so only if state-owned space is not otherwise available to the agency and the agency has verified it has money available to pay for the lease (id. § 2167.002(a)). In a lease under section 2167.055, the State, acting through the Commission, is the lessee, and the Commission's obligation to accept the leased space binds it on execution of the contract (id. § 2167.055(a), (f)). Such a contract may provide for an original term not exceeding ten years and may include options to renew for as many terms, none exceeding ten years each, as the Commission considers to be in the state's best interest (id. § 2167.055(c)). A lease without a renewal option may be renewed on terms to which all parties agree (id. § 2167.055(d)).

The State has the right to contract unless restricted by the Constitution, and the subjects of contract, the length of term, and the general policy on contracts are within the Legislature's power (Tex. Nat'l Guard Armory Bd. v. McCraw, 126 S.W.2d 627, 637 (Tex. 1939)). A lessee's right to exercise a renewal option is generally governed by the option's provisions, and a party may enforce an option only by strict compliance with its terms; lease agreements typically require advance notice to renew (Zeidman v. Davis, 342 S.W.2d 555, 556-58 (Tex. 1961); Mohammed v. D. 1050 W Rankin, Inc., 464 S.W.3d 737, 745 (Tex. App.-Houston [1st Dist.] 2014, no pet.)). Long-term state leasing also implicates the constitutional bar on creating state debt and the limit on appropriations beyond two years, though obligations that run current with revenues are not debts within the contemplation of the Constitution (Tex. Const. art. III, § 49; art. VIII, § 6). The Commission must ensure its leases conform to those limits, and section 2167.055(e) requires that any lease be made contingent on the availability of money appropriated by the Legislature to pay for it (Tex. Gov't Code § 2167.055(e)).

Citations

Statutes and constitutional provisions:

• Tex. Gov't Code §§ 2167.0011, .002, .007, .052, .055
• Tex. Gov't Code § 2167.002(a)
• Tex. Gov't Code § 2167.055(a), (c), (d), (e), (f)
• Tex. Const. art. III, § 49 (state debt)
• Tex. Const. art. VIII, § 6 (appropriations beyond two years)

Cases:

• Tex. Nat'l Guard Armory Bd. v. McCraw, 126 S.W.2d 627 (Tex. 1939)
• Zeidman v. Davis, 342 S.W.2d 555 (Tex. 1961)
• Mohammed v. D. 1050 W Rankin, Inc., 464 S.W.3d 737 (Tex. App.-Houston [1st Dist.] 2014, no pet.)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0106
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2016/kp0106.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

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 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'l 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 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]

[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.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").

[2] Parties to 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.

[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'l Guard Armory Bd., 126 S.W.2d at 637 (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).

                                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