South Dakota Commercial Lease Agreement

South Dakota Commercial Lease Agreement

A South Dakota commercial lease agreement is a legally binding contract between a landlord (lessor) and a business tenant (lessee) for the rental of commercial property. This document outlines all terms and conditions governing the use of retail, office, industrial, or other commercial space, including rent amount, lease duration, security deposit requirements, maintenance responsibilities, and the rights and obligations of both parties.

Once signed by both parties, the agreement becomes enforceable under South Dakota law. Unlike residential leases, commercial leases in South Dakota are subject to fewer statutory protections, giving parties greater freedom to negotiate terms. However, certain state and federal requirements still apply.

Legal Framework

Commercial leases in South Dakota are governed primarily by contract law principles and the South Dakota Codified Laws (SDCL), particularly:

• SDCL Chapter 43-32: Lease of Real Property - governs general lease requirements ^{[2] [4] [5]}
• SDCL Chapter 21-16: Forcible Entry and Detainer - governs eviction procedures ^[3]
• SDCL Chapter 36-21A: Real Estate Licensing - governs broker disclosure requirements ^[1]
• Federal ADA requirements (42 U.S.C. 12181 et seq.) for accessibility ^[7]
• Federal lead-based paint disclosure requirements for pre-1978 buildings ^{[6] [11]}

Types of Commercial Leases

South Dakota commercial leases typically follow one of three expense structure models:

Triple Net (Nnn) Lease

In a Triple Net lease, the tenant pays the base rent plus all three major operating expenses:

Property taxes

Property insurance

Common area maintenance (CAM)

This is the most common structure for standalone commercial buildings and retail spaces. The tenant assumes responsibility for virtually all property costs beyond the base rent.

Gross Lease (full Service)

In a Gross lease, the landlord pays all operating expenses. The tenant pays a single, all-inclusive rent payment that covers everything. This structure is common in multi-tenant office buildings and offers tenants predictable monthly costs.

Modified Gross Lease

Essential Lease Terms

A comprehensive South Dakota commercial lease agreement should include the following essential terms:

Parties and Property

Legal names and addresses of landlord and tenant

Property address and legal description

Square footage of leased premises

Common areas included in the lease

Permitted use of the premises

Financial Terms

Base rent amount and payment schedule

Expense structure (NNN, Gross, or Modified)

Security deposit amount and terms

Late fee provisions

Rent escalation clauses

• NSF check fee (maximum $40 per SDCL 57A-3-421) ^[8]

Lease Duration

Commencement date

Expiration date

Renewal options and terms

Holdover provisions

Security Deposit Requirements

South Dakota law provides specific requirements for security deposits: ^[2]

Deposit Limits

For residential properties, landlords may collect up to one month's rent as a security deposit, with higher amounts permitted for special conditions. Commercial leases are not subject to this statutory limit, and landlords typically negotiate deposits equal to one to three months' rent.

Return Requirements

Deposit must be returned within two weeks after tenant vacates

Landlord may withhold amounts for unpaid rent and damages beyond normal wear and tear

Itemized accounting must be provided within 45 days if requested (90 days for commercial)

Bad faith retention may result in punitive damages up to $200

Storage

South Dakota does not require landlords to hold security deposits in separate accounts or pay interest on deposits.

Required Disclosures

Real Estate Relationships Disclosure

When a real estate broker is involved in a commercial lease transaction, SDCL 36-21A-147 requires the broker to provide written disclosure of agency and brokerage relationships prior to discussing confidential objectives. ^{[1] [12]}

The disclosure form is available from the South Dakota Real Estate Commission. ^[9]

Lead-Based Paint Disclosure (pre-1978 Buildings)

Federal law requires landlords of properties built before 1978 to: ^{[6] [11]}

Provide the EPA pamphlet 'Protect Your Family From Lead in Your Home'

Disclose any known lead-based paint or hazards

Retain signed disclosure for three years

Exemptions apply to zero-bedroom units, short-term leases (100 days or less), and housing for elderly/disabled without children under six.

Landlord Rights and Obligations

Landlord Rights

Receive rent payments as specified in the lease

Enter premises with reasonable notice (24 hours recommended)

Enforce lease terms and pursue remedies for tenant defaults

Retain security deposit for legitimate deductions

Landlord Obligations

Deliver premises in condition suitable for intended use

Maintain structural components (unless otherwise specified)

Ensure tenant's quiet enjoyment of premises (SDCL 43-32-6)

Comply with all applicable building codes and safety regulations

Provide required disclosures

Tenant Rights and Obligations

Tenant Rights

Quiet enjoyment of the leased premises

Use premises for purposes specified in the lease

Request itemized accounting of security deposit deductions

Receive proper notice before lease modifications

Tenant Obligations

Pay rent on time

Maintain premises in good condition

Use premises only for permitted purposes

Obtain required insurance coverage

Comply with all lease terms

Maintenance and Repairs

Commercial lease agreements should clearly allocate maintenance responsibilities between the parties. Common allocations include:

Landlord Responsibilities (Typical)

Structural repairs (roof, foundation, exterior walls)

Major mechanical systems (HVAC, plumbing, electrical)

Common area maintenance (in multi-tenant buildings)

Building code compliance

Tenant Responsibilities (Typical)

Interior repairs and maintenance

Trade fixtures and equipment

Glass replacement

Routine cleaning and janitorial services

Nnn Lease Considerations

In Triple Net leases, tenants typically assume broader maintenance responsibilities, including those normally assigned to landlords. The lease should specify any caps on annual expense increases (typically 5-10%).

Insurance Requirements

Commercial leases should specify insurance requirements for both parties:

Landlord Insurance

Fire and extended coverage on the building

Commercial general liability insurance

Coverage amounts as deemed appropriate by landlord

Tenant Insurance

Commercial general liability: Minimum $1,000,000 per occurrence, $2,000,000 aggregate recommended

Property insurance for tenant's personal property and trade fixtures

Landlord named as additional insured

Certificate of insurance provided to landlord (ACORD forms)

30-day notice of cancellation to landlord

Waiver of Subrogation

Leases commonly include mutual waivers of subrogation, preventing each party's insurer from pursuing claims against the other party for insured losses.

Default and Remedies

Events of Default

Common events of default include:

Failure to pay rent within specified time period (typically 30 days after written notice)

Breach of lease terms not cured within notice period

Tenant insolvency, bankruptcy, or assignment for creditors' benefit

Abandonment of premises

Failure to maintain required insurance

Landlord Remedies

Terminate the lease and recover possession

• Pursue eviction through forcible entry and detainer action (SDCL 21-16) ^[3]

Sue for unpaid rent and damages

Apply security deposit to amounts owed

Accelerate remaining rent due under lease

Eviction Process (forcible Entry and Detainer)

South Dakota eviction procedures are governed by SDCL Chapter 21-16: ^[3]

Grounds for Eviction (sdcl 21-16-1)

Tenant holds over after lease termination

Failure to pay rent for three days after due date

Breach of lease terms

Waste or damage to premises

Forcible or unauthorized entry

Notice Requirements

Non-payment of rent: 3-day notice to pay or quit

Lease violations: Notice period as specified in lease

Holdover: May proceed immediately after lease expiration

Waste/damage: May proceed immediately

Court Process

File complaint in Circuit or Magistrate Court in county where property located

5-day summons served on tenant

Tenant may file answer

Court hearing and judgment

Sheriff executes judgment if tenant does not vacate

Lease Termination

Fixed-Term Leases

Fixed-term commercial leases expire on the specified end date. Renewal options should be exercised according to lease terms.

Month-To-Month Tenancies

For month-to-month commercial tenancies (SDCL 43-32-13, 43-32-15): ^[4]

Either party may terminate with one month's written notice

Landlord may modify lease terms with 30 days' notice before month's end

Tenant may terminate within 15 days of receiving modification notice

Holdover Tenancy

If a tenant remains after lease expiration without landlord consent, they become a holdover tenant. Leases commonly require holdover rent at 125-150% of the regular rate.

Subletting and Assignment

Commercial leases typically address subletting and assignment rights:

Generally prohibited without landlord's prior written consent

Consent not to be unreasonably withheld or delayed

Common exceptions: Corporate mergers, subsidiaries, related entities, sale of substantially all assets

Original tenant remains liable for lease obligations even after assignment

Sublease insurance requirements should mirror master lease

Ada Compliance

Title III of the Americans with Disabilities Act applies to commercial properties open to the public: ^[7]

Places of public accommodation must provide equal access for persons with disabilities

Both landlords and tenants may be liable for non-compliance

Lease should specify which party is responsible for ADA modifications

Civil penalties: Up to $75,000 for first violation, $150,000 for subsequent violations

Triple damages possible in private lawsuits

Lease Provisions

Commercial leases should address:

Which party responsible for existing ADA deficiencies

Which party responsible for future modifications

Indemnification provisions for ADA claims

Cooperation requirements for compliance

Alterations and Improvements

Commercial leases should address tenant improvements:

Landlord approval required for alterations (consent not unreasonably withheld)

Tenant improvements at tenant's expense

Workmanlike manner and quality materials required

Trade fixtures may be removed at lease end

Permanent improvements typically become landlord's property

Restoration requirements at lease termination