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January 28, 2026
What is the red flag doctrine in Texas?
In Texas fraud and misrepresentation cases, the “red flag” doctrine can defeat justifiable reliance when obvious warning signs would make reliance objectively unreasonable, especially in sophisticated commercial negotiations. [1]
Business negotiations are rarely straightforward. Parties exchange multiple proposals, revise drafts, and often explore various options simultaneously. A case currently before the Texas Supreme Court, Maya Walnut LLC v. Ly et al (Docket: No. 24-0171), could significantly influence the legal risks associated with this everyday negotiation process throughout Texas.
At the heart of the case is Texas’s “red flag” doctrine, a common-sense principle that, when there are obvious warning signs, a party cannot claim it reasonably relied on statements made by a party during deal negotiations. The dispute involves a grocery tenant in a Dallas-area shopping center whose lease was nearing expiration. Despite ongoing renewal discussions, the space was leased to another tenant. The original tenant argued it relied on the landlord’s conduct and was unfairly deprived of the chance to plan a timely relocation. Although a jury initially sided with the tenant, the Dallas Court of Appeals reversed the decision, concluding that the tenant could not reasonably claim reliance in light of multiple “red flags” that signaled no final deal had been reached.
The Texas Supreme Court’s ruling could determine whether the red flag doctrine remains a robust safeguard in business negotiations, or if it becomes easier to pursue fraud-based claims when negotiations fail. This doctrine is crucial because nearly every commercial negotiation involves “red flags” such as open terms, multiple options, unresolved approvals, competing considerations, changing economics, draft revisions, or the simple fact that no definitive agreement has been signed.
Why Businesses Should Care
If the Court modifies the red flag doctrine, negotiations in Texas, particularly in sophisticated commercial settings, could face increased risk. Commercial transactions, especially in real estate leasing, rely on predictable rules and efficient negotiations. A ruling that heightens liability based on negotiation conduct, even in the face of red flags, could lead to:
- More defensive negotiations, with parties limiting communications to avoid fraud accusations.
- Reduced transparency and collaboration, making deal discussions more guarded.
- Increased demand for papering every conversation, draft, and revision.
- More litigation over implied agreements rather than express ones.
In essence, negotiations could become less efficient and more costly, with parties feeling pressured to adopt firm positions earlier, complicating win-win outcomes. If the Texas Supreme Court modifies the red flag doctrine, it is likely to have a lasting impact on how commercial deals are conducted.
BoyarMiller filed an amicus brief on behalf of the International Council of Shopping Centers (ICSC), addressing the broader commercial impacts of the Court’s application of the red flag doctrine in commercial leasing negotiations.
Common Red Flags in Commercial Negotiations:
- Open terms
- Unresolved deal points
- “Subject to approval” language (board/lender/committee)
- Drafts marked non-binding or “for discussion”
- Parallel negotiations with other parties
- No signed definitive agreement
- No final counterparty signoff
Negotiation Risk Checklist:
- Put non-binding language in LOIs/term sheets
- Confirm “no deal until signed definitive agreement”
- Track approvals explicitly
- Avoid assurances that contradict written drafts
- Memorialize material changes and open issues
About The Authors:
Lee Collins, Shareholder, Real Estate and Litigation Groups
Lee focuses on delivering innovative, value-driven litigation solutions through strategic evaluation, clear communication, and trial-tested advocacy. He represents developers, owners, and managers of commercial real estate in state and federal courts, handling disputes involving leases, easements, construction issues, and bankruptcy matters. Lee has published and lectured nationally on topics affecting commercial landlords and pre-filing strategies in tenant bankruptcy cases. Beyond his legal practice, he supports Houston’s green initiatives through past leadership roles with Trees for Houston and service on The Houston Parks Board.
Kaylee Gum, Associate, Litigation Group
Kaylee Gum is an experienced commercial litigator with a background in complex business disputes. Before joining BoyarMiller, she served as an Air Force Judge Advocate, trying more than 45 cases and leading the Military Justice Division at Davis–Monthan Air Force Base. In private practice, she represents businesses in trials, arbitrations, and appeals, drawing on her deep courtroom and investigative experience. A magna cum laude graduate of William & Mary Law School and recipient of the Virginia State Bar’s Oliver White Hill Pro Bono Award, Kaylee is also active in Houston’s legal community and serves on the Houston Bar Association Military and Veterans Committee.