Which Transactions the UCC Doesn't Cover

There are many business-related contracts that the UCC does not cover, including real estate contracts, service contracts, and employment contracts.

By , Attorney | Updated by Amanda Hayes, Attorney

The Uniform Commercial Code (UCC) contains rules applying to many types of commercial contracts, including those related to:

However, there are also many business-related activities that the UCC doesn't cover. Key among these transactions are:

Let's look at each of these types of contracts.

Real Estate Contracts

The UCC doesn't apply to commercial real estate purchases or leases. Another way to put it: The UCC covers personal property, not real property. To find laws for real estate contracts, you'll need to look to other state laws, regulations, and court cases that specifically relate to real property.

For additional guidance on commercial real estate, check out our section on business space and commercial leases.

Real Estate Purchases

Let's say you run a manufacturing business and you need to buy a new factory or warehouse. At some point, after you've looked around at different spaces and locations, you'll sign a real estate sales contract—also called a "purchase and sale agreement".

Later, at closing, you'll sign additional documents, likely including contracts related to financing the purchase. Even though you're buying commercial real estate, the laws and rules for these real estate contracts will not be found in your state's commercial code.

Land Contract: Purchasing Real Estate Over Time

For an alternative type of real estate purchase, consider the document widely known as a "land contract"—or known in some states, like California, as a "real property sales contract." This type of contract is made between the current real estate owner and the buyer and is used to purchase the real estate from the current owner over time.

Typically, the buyer will make monthly payments to the current owner for a period of several years. Once the buyer pays off the full amount due under the contract, the title to the property is transferred from the current owner to the buyer.

In California, it's a section of the state's civil code, not the commercial code, that defines this type of real estate contract:

(Cal. Civ. Code § 2985 (2023).)

The immediately following sections of the California Civil Code go on to provide more particulars about real property sales contracts, covering such matters as:

  • transferring the contract
  • recording the contract, and
  • making installment payments on the contract.

Whether your own state calls it a "land contract," a "real property sales contract," or something else, you'll need to look somewhere other than your state's commercial code to find the rules governing this kind of contract.

Commercial Leases

Or, let's say you run a service-based business and you want to lease office space. Once you've settled on the space you want and discussed the details with the owner or management company, you'll be presented with a commercial lease. That lease is a contract—but not one that's covered under the UCC.

Like contracts related to the sale of commercial real estate, rules for contracts for leasing commercial real estate will instead be found in state real estate statutes and in court cases. For example, New York law is typical: Lease laws are part of the state's real property laws, not its commercial code.

Service Contracts

Your business might come across a contract related to services on different occasions. For example, your business might:

  • be a service-based business, such as repairing cars, painting houses, or doing interior decorating
  • pay another person or company to provide services—such as writing specialized software, redesigning your office space, or providing high-speed internet access; or
  • have a service contract with a company that repairs your office equipment if it breaks down.

All of these situations involve contracts between the service provider and the client or customer. Your state's version of the UCC, however, will not provide guidance on these types of contracts.

Insurance-related laws. Rules for some service contracts—in particular, services related to warranties or insurance—are frequently found among a state's insurance laws. These laws are separate from a state's commercial code. Illinois's insurance statutes, for example, include the Service Contract Act, which covers "providers" who agree "to perform the repair, replacement, or maintenance... of any automobile, system, or consumer product." (215 Ill. Comp. Stat. § 152/5 (2023).)

Contract law principles. When it comes to your own business providing services, or to hiring an independent contractor to work for you, you might not find much help in your state's statutes. Instead, you might need to rely on more general principles of contract law, which are largely found in common law (court decisions). There could, however, be certain laws relating specifically to consumer contracts that'll be relevant.

In general, you'll want these service contracts to state clearly what the service provider (either your service-based business or the service provider your business is hiring) will and will not do. For additional guidance, see our tips on making business agreements.

Employment Contracts

In many instances, if you hire an employee, you won't use a written employment contract. At most, there might be a written offer letter. In fact, in many cases, it might be inadvisable for you to be highly detailed about what you're offering an employee.

However, notwithstanding these facts, employment generally involves at least some contractual aspects. The rules regarding those aspects will not be found in the UCC.

Implied contracts. Some elements of employment contracts grow out of general contract law. For example, when it comes to employment, an oral contract is still a contract—and, more specifically, an implied contract. If you make an oral promise to cover moving expenses for a new employee, and then fail to keep that promise, you would be in breach of contract and the employee could sue you. You might find a court case in your state that speaks to this point—but, to repeat, you'll find nothing about it in the UCC.

Employee handbooks. Also, if you make use of an employee handbook, which is usually a good idea, that handbook could be considered a part of an employment contract—unless the handbook contains a disclaimer. Again, to find out more details on that point, you'd need to look not to a commercial code but to your state's court decisions.

For more information on when to use a contract with your employee, check out our article on firing employees with employment contracts.

Speaking With a Business Lawyer

In your business, you'll no doubt be part of dozens if not hundreds of contracts. For each contract, it's important to understand the laws that govern it, and what your rights and obligations are under it. If you're familiar with creating and interpreting business contracts, you probably won't need any help with these common documents. But for some contracts, it might be best to speak with an attorney before you sign or have someone else sign.

The type of lawyer you'll want to talk to will depend on the scope of the contract—but usually, a business attorney is a good person to start with. If you're signing a commercial purchase and sale agreement or commercial lease, you might want to talk to a real estate lawyer. If you're creating an employment contract or reviewing an old one, you should reach out to an employment lawyer. These attorneys can help you create, review, and negotiate contracts.

If you're looking for further reading on service contracts, including specific examples, check out Legal Forms for Starting & Running a Small Business, by Fred S. Steingold (Nolo) and Contracts: The Essential Business Desk Reference, by Richard Stim (Nolo).

Scope of the UCC: FAQ

While the UCC might seem endless, it does have its limitations (as we've already discussed). Here are some answers to frequently asked questions about the UCC and its coverage.

Does the UCC apply to all sales transactions?

No. The UCC applies to the sale of goods. But it doesn't apply to the sale of real estate or to the sale of services.

How do you know when the UCC applies?

If your business transaction doesn't involve real estate, services, or employment contracts, the UCC probably applies. If you look at the titles of the UCC articles, you can also get a good idea about which types of business activities the UCC covers.

If your business transaction involves both goods and real estate or services, the answer isn't as obvious. In this case, you'll need to determine what the main purpose behind the transaction is. For example, suppose you're dissolving your business and liquidating your assets. In one sale, you sell your warehouse, the land it's on, and some leftover equipment inside. Here, this sale involves real estate (the warehouse and land) and goods (the equipment). In this case, the UCC probably wouldn't apply because your main purpose behind the transaction is selling your real estate, and some goods are just included along with it.

Does the UCC apply to all 50 states?

All states have adopted most of the UCC. But you'll need to check your state's laws to see whether your state has adopted the most recent revisions of the UCC.

There are some important standouts to note. Louisiana is the only state to not adopt Article 2 of the UCC. Almost every state has chosen not to adopt Article 6 of the UCC governing bulk sales.

A 2022 revision of the UCC, adding another article—Article 12—was published in 2022. So far, as of 2023, only a small handful of states have adopted this most recent revision.

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