Brandywine Sues Texas Over Lease Termination

One of the largest property owners in Austin is among the landlords taking legal action against the State of Texas.

Philadelphia-based Brandywine Realty Trust sued the Texas Health and Human Services Commission, alleging the commission broke a contract by prematurely terminating an office lease at its Uptown ATX development, the Austin Business Journal reported.

The commission ended the lease due to “non-availability of money,” despite having the funds to pay the rent, the lawsuit alleges. Brandywine spent over $6 million on the tenant’s build-out requirements for the space, according to the suit.

The lease for roughly 122,000 square feet began in 2014 and was set to end in 2026. However, in January 2023, the commission began moving out of the building and requested lease termination. The annual base rent for the lease was $4 million.

The commission received sufficient funds from the Texas Legislature to pay the rent but falsely certified that the funds were not available, the lawsuit states. Brandywine is seeking a declaration that funds were appropriated for the lease, withdrawal of the termination notice, monetary damages for the breach of the lease and attorney’s fees.

Other landlords have sued the state of Texas for canceling rent contracts with private companies by refusing to appropriate the necessary funds. One such case involves Horizon Bank, which had a lease agreement with the Permanent School Fund Corporation.

But Gov. Greg Abbott signed a bill in September that contained a rider prohibiting the Permanent School Fund from using any of its funds to pay for private real estate, except for its old lease in the Moody Bank Building. Horizon called the state’s actions untrustworthy and sued for breach of contractual obligations.

A Florida-based LLC filed a lawsuit against the Texas Facilities Commission for similar reasons.

Brandywine’s Austin portfolio includes 20 properties, totalling 2.8 million square feet. The firm’s Uptown ATX development, spanning 66 acres and costing an estimated $3 billion, is slated for 7 million square feet of residential, retail and office space, as well as 11 acres of public parks and access to 23 miles of trails. Construction of the project’s first phase is underway, the outlet said.

It’s unclear how the Texas Health and Human Services Commission’s lease termination will affect occupancy levels at Uptown ATX, but Brandywine reported an occupancy rate of 88 percent between all of its properties in its third quarter report.

—Quinn Donoghue