A Texas court recently ruled in favor of Los Gallos Mexican Restaurant, LLC, allowing the restaurant to enforce its right to purchase the property it leases from The Shefman Family Limited Partnership. This decision, made by the Texas Court of Appeals on June 26, 2026, affects commercial landlords and tenants across the state, clarifying the validity of rights of first refusal even after a lease has expired.

The case, known as The Shefman Family Limited Partnership v. Los Gallos Mexican Restaurant, LLC (docket number 03-25-00406-CV), arose from a dispute over a commercial lease agreement. The court's ruling is significant as it sets a precedent regarding tenants' rights in similar situations.

Background

The parties involved in this case are The Shefman Family Limited Partnership, which owns commercial real estate in New Braunfels, Texas, and Los Gallos Mexican Restaurant, LLC, which operates a restaurant in one of the storefronts of that property. The dispute centers on a right of first refusal (ROFR) included in their lease agreement.

The lease contained two important sections. The first section, titled “Sale of Property,” granted Los Gallos the right to purchase the property if Shefman received a bona fide offer from another buyer. The second section, titled “Holding Over,” stated that if Los Gallos remained in possession of the property after the lease expired without signing a new lease, it would become a month-to-month tenant.

When the original lease expired, Los Gallos continued to occupy the property, thereby becoming a month-to-month tenant. During this time, another party made an offer to buy the property, and Los Gallos attempted to exercise its ROFR. However, Shefman rejected Los Gallos's offer and accepted the third party's offer instead, although it later decided not to sell the property at all. This prompted Los Gallos to sue Shefman for breach of contract, seeking specific performance of its ROFR.

The Ruling

The Texas Court of Appeals reviewed the case and upheld the lower court's decision, which had previously granted summary judgment in favor of Los Gallos. The court ruled that Los Gallos's ROFR remained valid and enforceable even after it became a month-to-month tenant. The court stated, “We hold that Los Gallos’s ROFR under Section 5 of the Commercial Lease continued to be valid and enforceable during Los Gallos’s month-to-month tenancy under Section 19.”

This ruling clarified that the terms of the original lease, including the ROFR, continue to apply during a month-to-month tenancy. The court emphasized that even if Los Gallos's status was characterized as a tenancy-at-will, the original lease's terms would still govern the arrangement. The judges involved in the ruling were Justices Triana, Kelly, and Ellis.

Impact

This decision has significant implications for both landlords and tenants in Texas. It reinforces the notion that rights of first refusal can remain in effect even after a lease has expired, as long as the tenant continues to occupy the property. This ruling may encourage tenants to assert their rights more confidently and could lead to greater negotiation power in lease agreements.

Furthermore, the court's decision may influence how future lease agreements are drafted. Landlords may need to reconsider the language used in their leases to ensure clarity regarding rights of first refusal and the implications of month-to-month tenancies. The ruling establishes a clear precedent that could guide similar cases in the future.

What's Next

Details were not available in the court filing regarding whether Shefman plans to appeal this ruling. However, the case sets a significant precedent in Texas law regarding the enforceability of rights of first refusal in commercial leases.