MONTANA COMMERCIAL LEASE AGREEMENT

Montana Commercial Lease Agreement

A Montana commercial lease agreement is a legally binding contract between a commercial property owner (landlord) and a business tenant that establishes the terms and conditions for renting commercial space. Unlike residential leases, which are heavily regulated by Montana's Residential Landlord and Tenant Act of 1977, commercial leases in Montana are governed primarily by contract law principles, giving parties substantial freedom to negotiate terms.

This document provides essential information about Montana commercial lease requirements, mandatory disclosures, and best practices for both landlords and tenants entering into commercial lease agreements.

Legal Framework

Statute of Frauds

Under Montana law, commercial leases with a term exceeding one year must be in writing and signed by the party to be bound. ^[3] Montana Code Section 70-20-101 provides that "an estate or interest in real property, other than an estate at will or for a term not exceeding 1 year, may not be created, granted, assigned, surrendered, or declared otherwise than by operation of law or a conveyance or other instrument in writing."

Key implications:

Leases of one year or less can technically be oral (though written agreements are strongly recommended)

Leases exceeding one year MUST be in writing to be enforceable

The writing must be signed by the party against whom enforcement is sought

A landlord's authorized agent may sign on behalf of the landlord if properly authorized in writing

Commercial Vs. Residential Distinction

Security deposit limits and return timelines are negotiable (not statutory)

Notice periods for termination are defined by the lease (not by statute)

Landlord remedies and tenant protections depend on contract terms

Parties have greater freedom to allocate risks and responsibilities

Required Disclosures

Agency Relationship Disclosure

When a real estate broker or salesperson is involved in a commercial lease transaction, Montana law requires disclosure of agency relationships. ^[1] Under Montana Code Section 37-51-314, brokers and salespersons must provide written disclosure of:

The existence and nature of any agency relationships

Duties owed to each party

Dual agency limitations (if applicable)

Definition of "adverse material fact"

The disclosure must be signed by all relevant parties with the disclosure date. If the relationship changes during the transaction, updated disclosures are required.

Mold Disclosure

Montana Code Section 70-16-703 requires landlords who have knowledge of mold on the property to disclose this information to prospective tenants prior to entering into a lease agreement. ^[2]

Required elements:

Standardized mold disclosure statement

Disclosure of known mold presence

Results of any prior mold testing (if available)

Documentation of any remediation efforts

Compliance with these disclosure requirements provides landlords with liability protection for mold-related claims, provided the disclosures are honest and complete.

Lead-Based Paint Disclosure (Federal)

For commercial properties built before 1978 that will be used for residential purposes or child-occupied facilities, federal law (42 USC Section 4852d) requires lead-based paint disclosure. ^[7] While this primarily applies to residential properties, commercial landlords should be aware of this requirement if the intended use involves housing or child care.

Types of Commercial Lease Structures

Commercial leases are typically structured based on how operating expenses are allocated between landlord and tenant. The three primary structures are:

Triple Net Lease (Nnn)

In a triple net lease, the tenant pays all operating expenses in addition to base rent. These expenses typically include:

Property taxes

Building insurance

Common area maintenance (CAM)

Utilities

HVAC maintenance

Landscape maintenance

Triple net leases shift most financial risk to the tenant and are common for standalone retail and industrial properties.

Gross Lease (full Service)

In a gross lease, the landlord pays all operating expenses and the tenant pays a single, all-inclusive rent amount. The landlord is responsible for:

Property taxes and insurance

Exterior and structural maintenance

Major systems (heating, plumbing, electrical)

Parking area maintenance and snow removal

Common area upkeep

Gross leases provide tenants with predictable occupancy costs and are common in multi-tenant office buildings.

Modified Gross Lease

A modified gross lease divides expenses between landlord and tenant according to negotiated terms. This hybrid structure allows parties to allocate specific expenses based on their preferences and the nature of the property. Common variations include:

Tenant pays utilities; landlord pays taxes and insurance

Tenant pays CAM; landlord pays structural maintenance

Base year expense stops (tenant pays increases above base year)

Essential Lease Provisions

Premises Description

A clear and accurate description of the leased premises is essential. The lease should specify:

Street address

Suite or unit number

Square footage (specify if usable or rentable)

Type of space (retail, office, industrial, warehouse)

Common areas included in tenant's use

Parking allocations

Use Restrictions

The lease should clearly define the permitted use of the premises. Options include:

All purposes legal under law (most tenant-favorable)

Specific permitted uses only (most landlord-favorable)

Exclusive use provisions (common in retail centers)

Any change in use typically requires landlord's prior written consent.

Rent Structure

Base Rent: The fixed monthly amount payable by the tenant. The lease should specify:

Amount and payment frequency

Due date for each payment

Acceptable payment methods

Address for rent payments

Percentage Rent: Common in retail leases, percentage rent requires the tenant to pay a percentage of gross or net sales in addition to base rent. The lease should specify:

Percentage rate

Definition of gross/net sales

Reporting requirements

Payment frequency (monthly, quarterly, annually)

Audit rights

Security Deposit

Unlike residential leases, commercial security deposits in Montana are NOT subject to statutory limits or return timelines. All terms are negotiable between the parties. Common provisions include:

Amount (often one to three months' rent)

Permitted deductions

Return timeline after lease termination

Interest accrual (if any)

Letter of credit alternatives

Late Fees

The lease should specify consequences for late rent payment:

Grace period (number of days after due date)

Late fee amount (flat fee or percentage)

Whether fee accrues per occurrence or per day

Application of partial payments (to fees first, then rent)

Ada Compliance

Title III of the Americans with Disabilities Act (ADA) applies to commercial properties that are places of public accommodation. ^[5] Both landlords and tenants share legal responsibility for ADA compliance, regardless of how the lease allocates costs.

Shared Responsibility

The ADA National Network confirms that "the ADA places the legal obligation to remove barriers or provide auxiliary aids and services on both the landlord and the tenant." ^[10] While the lease may allocate who pays for modifications, both parties remain legally liable.

Typical Allocation

Landlord: Structural accessibility, common areas, building-wide systems

Tenant: Interior space modifications, auxiliary aids and services

Penalties for Non-Compliance

First-time violation: Up to $75,000

Subsequent violations: Up to $150,000

Private lawsuits by affected individuals

Injunctive relief requiring modifications

The U.S. Access Board provides detailed ADA Accessibility Standards that apply to new construction and alterations. ^[6]

Assignment and Subleasing

In Montana, a tenant generally needs the landlord's written consent to assign or sublease commercial property unless the lease explicitly permits such transfers.

Consent Requirements

Without lease provision: Landlord consent required

With permissive lease provision: May transfer without consent

Landlord Consent Standards

Many commercial leases include language that the landlord "shall not unreasonably withhold or delay its consent." Reasonable grounds for denial may include:

Poor credit history of proposed assignee/sublessee

Bankruptcy filing

Proposed use inconsistent with building character

Inadequate business experience

Consequences of Unauthorized Transfer

Assigning or subleasing without required consent constitutes a breach of the lease. In Montana, lease violations permit the landlord to initiate eviction proceedings, typically starting with a 14-day notice to comply or vacate.

Termination and Eviction

Lease Termination

Commercial lease termination provisions are primarily governed by the lease agreement itself, not statute. Common provisions include:

Natural expiration at end of term

Mutual agreement of parties

Tenant default with landlord termination right

Landlord default with tenant termination right

Early termination options (if negotiated)

Eviction Process

Montana's unlawful detainer statutes (MCA Sections 70-27-101 through 70-27-212) govern the eviction process. ^[4] The process typically involves:

Written notice per lease terms (not statutory periods for commercial)

Filing complaint in Justice Court or District Court

Court hearing and judgment

Writ of possession if landlord prevails

Sheriff enforcement of writ

Insurance Requirements

Insurance requirements in commercial leases are negotiated between the parties and are not mandated by statute. Common requirements include:

Tenant Insurance (Typical)

Commercial General Liability (CGL) - commonly $1,000,000 per occurrence

Property insurance on tenant's personal property and improvements

Workers' compensation (if employees present)

Business interruption insurance

Professional liability (for certain professional tenants)

Landlord Insurance (Typical)

Property insurance on building structure

Liability insurance for common areas

Loss of rents coverage

Common Lease Requirements

Naming landlord as "additional insured" on tenant's policy

Certificate of insurance prior to occupancy

Waiver of subrogation provisions

Notice of cancellation requirements

Business Entity Requirements

When the tenant is a business entity (LLC, corporation, partnership), Montana requires the entity to be properly registered and in good standing. ^[8]

Current registration with Montana Secretary of State

Registered agent with Montana address

Good standing status

Authority to do business in Montana (for out-of-state entities)

Personal Guarantee

Landlords commonly require personal guarantees from business owners, particularly for:

New businesses without established credit history

LLCs and corporations with limited assets

Tenants with weak financial statements

A personal guarantee makes the business owner(s) personally liable for lease obligations if the business fails to perform. Guarantees may be full (unlimited) or limited to a specific dollar amount or time period.

Environmental Considerations

Beyond the mold disclosure requirement, commercial landlords and tenants should consider additional environmental issues:

Asbestos (common in pre-1980 commercial buildings)

Underground storage tanks

Hazardous materials storage and disposal

Indoor air quality

Contaminated soil or groundwater

The Montana Department of Environmental Quality oversees environmental compliance in the state. ^[9] Commercial leases should address environmental liability allocation, compliance responsibilities, and indemnification provisions.