## Commercial leases in South Dakota Commercial real-estate leases are negotiated transactions — unlike residential leases, where state law heavily protects tenants, commercial tenants generally get only the protections they negotiate. ## Types of commercial leases **Gross lease (full-service):** - Tenant pays one rent amount - Landlord pays property taxes, insurance, common-area maintenance (CAM) - Common in office buildings **Net lease:** - **Single net (N)** — tenant pays property tax - **Double net (NN)** — tenant pays property tax + insurance - **Triple net (NNN)** — tenant pays property tax + insurance + CAM - Common in retail and industrial **Modified gross / industrial gross:** - Hybrid; specific items split between landlord and tenant - Most common in office buildings **Percentage lease:** - Base rent + percentage of gross sales - Common in retail (especially shopping centers) **Ground lease:** - Tenant leases land only; builds and owns improvements - Long-term (50-99 years) - Improvements typically revert at end ## Major lease provisions to negotiate **1. Rent + escalations.** Annual increases (CPI, fixed %, periodic resets). Beware percentage leases without floor. **2. Term + renewal options.** Initial term, options to extend, advance notice required. **3. Use clause.** What you can use the space for. Narrow definitions hurt; broad definitions protect against assignment limitations. **4. Exclusive use / co-tenancy.** Landlord agrees not to lease to competitors. Co-tenancy = right to reduce rent or terminate if anchor tenant leaves shopping center. **5. Maintenance / repair obligations.** Roof, HVAC, structural, common areas — who's responsible for what. **6. CAM charges (in net leases).** Calculate carefully — common-area expenses can grow substantially. **7. Tenant improvements (TI) / build-out.** Who pays for finishes, construction, customization. Landlord allowance vs reimbursable vs tenant-paid. **8. Assignment / subletting.** Tenant's right to transfer the lease. Landlord consent often required, but should be "not unreasonably withheld." **9. Default + cure periods.** Notice + opportunity to cure. Time matters — short cure periods favor landlord. **10. Holdover.** What happens if tenant stays past lease end without renewal. Often 150-200% of normal rent. **11. Insurance + indemnification.** Mutual indemnity vs one-sided; insurance limits. **12. Personal guarantees.** Often required for small businesses. Negotiate "good guy" guarantees that release upon return of premises. **13. Operating expense exclusions.** Caps on increases, exclusions for capital improvements / management fees. **14. Termination rights.** Casualty / condemnation / co-tenancy / breach by landlord. **15. Restoration obligations.** End of lease — restore to original condition vs leave as-is. ## Common landlord traps - **"As is" condition** — accepting a space without inspection - **Open-ended CAM** — uncapped operating expenses - **Personal guarantees with no escape** - **Holdover at 200%** — accidentally signed - **Limited assignment rights** — can't transfer lease - **No exclusive use** — competitor moves in next door - **Pass-through of capital expenses** — major repairs become tenant's burden - **Limited termination rights** — stuck if business fails ## Common tenant traps - **Underestimating CAM growth** - **Insufficient TI allowance** — out-of-pocket build-out cost - **Use clause too narrow** — can't pivot business - **Insufficient notice for renewal** — losing the option - **Inadequate insurance** - **Holdover trap** — staying past term without renewal - **Assigning without consent** — voiding the lease ## Letter of intent (LOI) Most commercial leases start with a non-binding LOI covering: - Premises description - Square footage - Term + renewal options - Base rent + escalations - TI allowance - Free rent / abatement - Permitted use - Personal guarantee Negotiate the LOI carefully — getting concessions there is easier than re-opening them in the lease. ## Personal guarantees Most small-business commercial tenants face personal guarantees. Negotiation points: - **"Good guy" guarantee** — releases when tenant returns the space (without other defaults) - **Limited dollar amount** — capped at 6-12 months rent - **Limited duration** — drops away after Year 2 if tenant performs - **Single guarantor** — not all owners - **Specific carve-outs** — release on sale of business Without these, personal guarantees can result in personal liability for years of unpaid rent. ## Defaults and remedies Landlord remedies after tenant default typically include: - **Cure rent** — pay what's owed + interest + late fees - **Termination** — terminate the lease - **Eviction** — physically remove tenant (commercial eviction is faster than residential in most states) - **Damages** — accelerated rent (if lease provides) + cost of re-letting + tenant improvements - **Personal guarantor liability** Tenant remedies for landlord default: - **Cure** — fix the problem and back-charge - **Withholding rent** — generally NOT allowed under commercial leases (unlike residential) - **Self-help** — limited - **Litigation** — for damages ## Bankruptcy considerations When tenant files bankruptcy: - Lease can be **assumed** (continued) or **rejected** - Rejection = breach + damages claim with statutory cap - Landlord can't terminate solely because of bankruptcy - Many leases include broader default provisions to navigate around this ## What you should do Don't sign a commercial lease without legal review. Most South Dakota commercial real-estate attorneys offer flat fees for lease review ($1,500-$5,000) — and the savings vs DIY easily pay for themselves. Don't be intimidated by the landlord's "standard" form — every clause is negotiable. --- *This guide is general information about South Dakota law as of early 2026 and is not legal advice. Commercial leases are heavily negotiated documents. Talk to a licensed South Dakota commercial real-estate attorney about your specific lease.*