Residential vs. Commercial Construction Issues in Texas

Residential and commercial construction projects in Texas share many legal principles but differ in key areas that affect contracts, compliance, payment rights, and dispute resolution. Understanding these differences is essential for contractors, developers, and property owners who want to avoid costly legal mistakes.

This page outlines the major legal and practical distinctions between residential and commercial construction under Texas law.

1. Legal Definitions

Texas law distinguishes between residential and commercial construction for regulatory and lien purposes.

• Residential construction typically involves one- or two-family dwellings, townhomes, duplexes, and some multi-unit developments
• Commercial construction includes office buildings, retail centers, warehouses, apartment complexes, and industrial facilities

The type of project impacts licensing, contract requirements, lien rights, and consumer protections.

2. Licensing and Registration

Texas does not require state licenses for general contractors on either residential or commercial projects. However:

• Specialty trades (e.g., electricians, HVAC, plumbers) must be licensed
• Residential contractors may need to register with local municipalities
• Commercial contractors are subject to project-specific permitting and inspections

Local cities such as Houston, Dallas, and Austin often have separate registration rules for residential builders.

3. Contracts and Disclosures

Residential construction contracts are subject to more formal requirements than commercial ones. Under Texas law:

• Residential construction contracts must often be in writing and contain mandatory disclosures
• Home improvement contracts must include the Texas Property Code Section 41.007 homestead protections
• Commercial construction contracts are generally more flexible and governed by negotiated terms

Failure to include required language in a residential contract may limit enforceability or expose the contractor to penalties.

4. Lien Rights and Deadlines

Both residential and commercial contractors have lien rights, but the deadlines and notice procedures differ.

• On residential projects, subcontractors and suppliers must send a pre-lien notice by the 15th day of the second month after work
• On commercial projects, the deadline is typically the 15th day of the third month
• Homestead property liens require a written and recorded contract signed by both spouses before work begins

Mistakes in notice or filing timing can invalidate a lien, especially on residential property where rules are stricter.

5. Payment and Retainage

Commercial contracts often involve complex payment structures, including:

• Progress payments based on milestones
• Retainage (commonly 10%) withheld until final completion
• Pay-when-paid or pay-if-paid clauses

In residential construction:

• Payment schedules are usually simpler
• Contractors are subject to the Texas Residential Construction Liability Act (RCLA)
• Owners may be more sensitive to budget and timeline changes

Prompt payment laws apply to both settings but may be enforced differently based on contract language and project size.

6. Dispute Resolution

Disputes in both residential and commercial construction projects may involve:

• Payment claims
• Defective work
• Delay damages
• Change order disagreements
• Termination for cause or convenience

However, the process and cost of resolution differ:

• Commercial disputes often go to arbitration or commercial litigation
• Residential disputes must follow the RCLA process, including a 60-day notice and right to cure
• Homeowners are typically protected by consumer laws and may have access to additional remedies

Understanding which dispute resolution procedure applies is critical to enforcing or defending your rights.

7. Insurance and Risk Allocation

Commercial construction projects typically involve:

• Builder’s risk insurance
• Commercial general liability (CGL) coverage
• Subcontractor insurance verification
• Bonding requirements

In residential projects:

• Fewer parties may be involved
• Insurance needs vary depending on the size and scope of the project
• Homeowners may rely on personal property insurance for certain losses

Risk allocation clauses should be tailored to the specific project type to ensure appropriate coverage and responsibility.

8. Building Codes and Inspections

All construction in Texas must comply with applicable building codes, but enforcement varies.

• Residential inspections focus on life safety, energy codes, and foundation standards
• Commercial inspections are more rigorous and involve fire protection, accessibility, and public use requirements
• Projects in incorporated cities are subject to local amendments to the International Building Code (IBC) or International Residential Code (IRC)

Failing an inspection or skipping permits can lead to stop-work orders, fines, or delays in closing out the job.

9. Consumer Protections in Residential Construction

Homeowners in Texas benefit from additional legal protections not typically available in commercial projects. These include:

• The Residential Construction Liability Act
• The Deceptive Trade Practices Act (DTPA)
• Strict requirements for home solicitation sales
• Statutory warranties and performance standards

Contractors must take care to comply with notice, warranty, and disclosure obligations when working on residential projects.

10. Best Practices for Each Project Type

Whether working in residential or commercial construction, you should:

• Use clear, written contracts tailored to the project type
• Understand and follow the appropriate lien rules
• Verify licensing, insurance, and bonding requirements
• Keep detailed project records
• Follow applicable building codes and inspection processes
• Know the legal obligations for dispute resolution and defect claims

Tailoring your approach to the project type reduces risk and supports smoother project delivery.

Conclusion

Texas law treats residential and commercial construction differently in key areas such as contracts, liens, compliance, and dispute resolution. Contractors, developers, and property owners must understand these distinctions to protect their interests and avoid legal exposure.

Guerra Days Law Group helps clients navigate residential and commercial construction projects from start to finish. If you need legal guidance on your next build, contact us for experienced representation.