The Texas Court of Appeals recently ruled in a landlord-tenant dispute involving Montrose 15, LLC, and Montrose Collective Owner, LP. The court upheld a trial court's decision that awarded damages to the landlord, including an 18% interest rate on the amount owed. This ruling impacts the parties involved and clarifies how interest rates are applied in such cases.
The case, Montrose 15, LLC D/B/A Idle Hands, Andrew Hunter, Crystal Hunter, and Matthew Wolski v. Montrose Collective Owner, LP (docket number 01-25-00756-CV), centers around a retail lease agreement signed in 2021. Montrose 15, the tenant, leased a space that included both indoor and outdoor areas for a period of ten years. The landlord, Montrose Collective Owner, filed a lawsuit in late 2023, claiming that Montrose 15 had failed to pay rent and breached the lease.
The lawsuit proceeded to a bench trial where the landlord sought money damages and attorney's fees. The trial court ruled in favor of the landlord, awarding $264,146 in damages, $81,805 in prejudgment interest, attorney's fees, and postjudgment interest at a rate of 18% per annum. Montrose 15 subsequently filed a motion to modify the judgment, arguing against the 18% interest rate, claiming it should be 7.5% based on the Texas Finance Code.
The dispute arose because the lease did not specify an interest rate for prejudgment and postjudgment interest. Montrose 15 contended that the Finance Code should apply, which states that if a contract does not provide for interest, the rate defaults to the prime rate published by the Federal Reserve. The tenant argued that on June 17, 2025, the prime rate was 7.5%, not the 18% awarded by the trial court.
The court reviewed the lease agreement, which consisted of 46 pages of detailed provisions. A key section, Article VII, addressed late charges and stated that interest on overdue payments could not exceed 1.5% per month. This provision became the focal point of the court's analysis. The court noted that other sections of the lease similarly referenced a maximum interest rate of 1.5% per month.
The court explained that under Texas law, if a contract specifies an interest rate, the postjudgment interest will be the lesser of that rate or 18% per year. The court cited previous decisions that established that contracts with a monthly interest rate of 1.5% could lead to an annual rate of 18%. The court concluded, "We hold that the trial court was correct when it found the rate to be 18%." This ruling affirmed the trial court's decision and clarified the application of interest rates in breach of contract cases.
The ruling has significant implications for future landlord-tenant disputes in Texas. It reinforces the idea that even if a lease does not explicitly state a specific interest rate for prejudgment and postjudgment interest, courts may apply the statutory maximum of 18% if the contract includes provisions for interest on overdue payments. This case sets a precedent for how similar disputes may be resolved in the future.
Moving forward, the parties involved in this case may seek to appeal the ruling, although the court did not indicate any immediate plans for further legal action. The trial court retains jurisdiction to address any disputes regarding the amount of security required to suspend enforcement of the judgment. The court's decision also allows for the possibility of modifying the amount of security required, should either party desire to do so.