Utah Commercial Lease Agreement

Introduction

A Utah commercial lease agreement is a legally binding contract between a landlord (property owner) and a tenant (business entity) for the rental of commercial property. The agreement establishes the terms and conditions of the rental arrangement, including rent payment, security deposit, lease duration, renewal options, and the allocation of operating expenses. Once executed by both parties, it creates enforceable rights and obligations under Utah law.

Legal Framework

Commercial leases in Utah operate within a legal framework that includes:

• Utah Uniform Commercial Code - Leases (Title 70A, Chapter 2a) ^[2]

Common law contract principles

Utah Real Estate statutes (Title 57)

• Utah Forcible Entry and Detainer Act (Title 78B, Chapter 6, Part 8) ^[3]
• Federal laws including the Americans with Disabilities Act ^[4]

The Utah Fit Premises Act (Utah Code 57-22) does not apply to commercial properties - it governs residential rentals only. ^[1] Commercial landlords and tenants must rely on the terms of their lease agreement and common law principles for dispute resolution.

Types of Commercial Lease Structures

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

Triple Net Lease (Nnn)

In a Triple Net (NNN) lease, the tenant pays the base rent plus all operating expenses associated with the property. ^[5] The term 'NNN' stands for 'net, net, net' - meaning the lease is net of property taxes, net of insurance, and net of common area maintenance (CAM) costs.

Operating expenses typically include:

Property taxes

Building insurance premiums

Common Area Maintenance (CAM) - parking lots, landscaping, shared facilities

HVAC maintenance and repairs

Utilities for common areas

Gross Lease (full Service)

In a Gross lease (also called a full-service lease), the landlord pays all or most operating expenses. The tenant pays a single, flat rental amount that includes base rent plus operating expenses. This structure is simpler for tenants to budget but may result in higher base rent.

Modified Gross Lease

A Modified Gross lease is a hybrid structure where landlord and tenant negotiate which operating expenses each party will pay. This provides flexibility and is common when parties want to share risk and responsibility for property costs.

Required Disclosures

Agency Disclosure (when Real Estate Agent Involved)

When a licensed real estate agent is involved in the transaction, Utah Administrative Code R162-2f-401a requires the agent to disclose their agency relationships in writing to clients, other agents, and any unrepresented parties before executing a binding lease agreement. ^[6]

The disclosure must include:

The licensee's agency relationships

License status (active or inactive)

Any position as a principal in the transaction

Existence of due-on-sale clauses in underlying encumbrances

Environmental Disclosures

Asbestos: For buildings constructed before 1981, landlords should disclose any known asbestos-containing materials. The Utah Division of Air Quality enforces federal Asbestos NESHAP rules (40 CFR 61 Subpart M). ^[7]

Lead-Based Paint: While federal Title X disclosure requirements apply specifically to residential properties built before 1978, environmental due diligence is advisable for commercial transactions involving older buildings. ^[8]

Zoning: Landlords should disclose any known zoning infringements that could affect the tenant's intended business use of the property.

Security Deposits

Utah law provides no statutory limits on commercial lease security deposits. Unlike residential leases (governed by Utah Code 57-17), commercial landlords have complete discretion regarding:

Amount of security deposit required

Timeline for return (no 30-day requirement as with residential)

Holding/commingling of funds (no prohibition)

Interest payments (no requirement)

All security deposit terms should be clearly specified in the lease agreement, including conditions for deductions and refund procedures.

Insurance Requirements

Commercial leases typically require both landlord and tenant to maintain specific insurance coverage. Standard requirements include:

Tenant Insurance Requirements

Commercial General Liability (CGL): Minimum $1,000,000/$2,000,000 limits

'All Risk' property insurance for tenant's personal property at replacement cost

Workers' Compensation Insurance as required by Utah law

Business Income/Interruption coverage (typically 12-18 months)

The landlord is typically named as an additional insured on the tenant's policy, with a requirement for 30 days' prior written notice of cancellation.

Landlord Insurance Requirements

Landlords typically insure the building, shell, and tenant improvements. In NNN leases, this cost is passed through to tenants as part of operating expenses.

Documentation

Tenants must provide Certificates of Insurance (COI):

ACORD-27 form for Property Insurance

ACORD-25 form for Liability Insurance

Standard waivers of subrogation

Ada Compliance

Under the Americans with Disabilities Act (ADA), both landlord and tenant are legally responsible for accessibility compliance. ^[4] While the lease may allocate who makes modifications, both parties remain legally liable to third parties.

Landlord Responsibilities

Common areas (hallways, entrances, parking lots)

Shared restrooms

Building access (ramps, elevators - shared with tenant)

Tenant Responsibilities

Interior of leased space

Layout modifications for accessibility

Accessible fixtures and furnishings

Penalties: Non-compliance can result in fines up to $75,000 for a first offense and $150,000 for subsequent violations.

Assignment and Subletting

Utah law does not explicitly permit or prohibit subleasing - the tenant's rights depend entirely on the lease agreement. Key principles include:

Tenants must obtain explicit written consent from landlord before subleasing

Landlord cannot refuse without good reason (e.g., subtenant's inability to pay)

Original tenant remains liable for all lease obligations even with subtenant

Unauthorized subletting constitutes breach of lease

Typical commercial lease provisions: Tenant may assign without consent to: (a) a corporation with which tenant merges, (b) any subsidiary, (c) any corporation under common control, or (d) a purchaser of substantially all tenant's assets. All other assignments require landlord consent, not to be unreasonably withheld.

Default and Remedies

Events of Default

Typical events of default in Utah commercial leases include:

Failure to pay rent when due (after notice period)

Failure to perform material lease obligations

Unauthorized assignment or subletting

Conducting unlawful business on premises

Permitting nuisance on the property

Waste of the premises

Landlord Remedies

Under Utah UCC-Leases (Title 70A-2a), landlord remedies include: ^[2]

Claim for damages

Reduction of claim to judgment

Enforcement through judicial or non-judicial procedures

Administrative proceedings or arbitration

Duty to Mitigate: When a commercial tenant wrongfully vacates and defaults on rent, the landlord has a legal duty to make reasonable efforts to re-let the premises. If landlord accepts surrender of the property, subsequent rent cannot be recovered.

Statute of Limitations

Actions for default under a lease contract must commence within four (4) years after the cause of action accrued. The parties may reduce this period by agreement to not less than one year. ^[2]

Eviction Procedures

Commercial evictions in Utah follow the Unlawful Detainer procedures in Utah Code 78B-6-802. ^[3] The term 'tenant' includes commercial tenants under Utah Code 78B-6-801(6).

Notice Requirements

Prohibited Actions

Under Utah Code 78B-6-814, landlords may not engage in self-help eviction methods: ^[3]

Lockouts are prohibited

Utility shut-offs are prohibited

All evictions must go through proper legal channels

Recording the Lease

Long-term commercial leases may be recorded with the County Recorder to protect the tenant's leasehold interest. Utah is a race-notice jurisdiction, meaning a later buyer who pays fair value, has no notice of prior interests, and records first will have priority. ^[9]

Memorandum of Lease

Instead of recording the full lease (which may contain confidential terms), parties typically record a Memorandum of Lease that provides public notice of the lease's existence without disclosing all terms.

Recording Requirements

Documents submitted to the Utah County Recorder must meet these requirements: ^[9]

White paper, 8.5" x 11" format

2.5" x 4.5" blank space in upper right corner of first page

1" margin at top of subsequent pages

Original signatures and notarization

Legal description of the property

Brief caption stating nature of document

Mailing address of grantees

Business Licensing and Zoning

Commercial tenants must ensure compliance with applicable business licensing and zoning requirements:

Business Licenses

No state-level general business license required in Utah

All businesses MUST obtain a city or county level business license

Fire inspections required for all commercial business licenses

State Registrations

Utah Department of Commerce (professional/occupational licenses)

Utah State Tax Commission (sales tax, withholding)

Utah Department of Workforce Services (unemployment insurance)

Zoning Compliance

Before signing a commercial lease, tenants should verify that the intended business use is permitted under local zoning regulations. Contact the city or county planning/zoning office where the property is located.

Personal Guarantees

Commercial landlords frequently require personal guarantees, especially for:

New businesses with limited credit history

Small business tenants

Newly formed business entities

Types of Guarantees

Personal Guarantee: Individual personally liable for all lease obligations

Corporate Guarantee: Parent company guarantees subsidiary's obligations

Limited Guarantee: Liability capped at specific amount or timeframe

Good Guy Guarantee: Liability ends if tenant vacates properly

Bank Guarantee: Financial institution provides assurance

Negotiation Options

Guarantors may negotiate limitations such as:

Time limits (e.g., first 3-4 years of a 10-year lease)

Burndown provisions (decreasing liability over time)

Maximum liability caps

Property Management Licensing

In Utah, property management is considered a real estate activity requiring a broker's license. ^[10]

Exemptions

Owner managing their own property

Employee working for one property owner

Apartment managers residing on-site at reduced rent

Full-time salaried HOA employees

Hotel/motel management

Rentals of less than 30 consecutive days