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Everything You Need to Know About the Commercial Lease Agreement in South Dakota
To lease property is to legally give another temporary possession, as well as the temporary use of the commercial or real estate property for a reward. In exchange, the other party promises to protect the property while using it and to return it at a later date. The party that gives out the rights is the lessor or the landlord while the party that is given the right to use the property is the lessee or the tenant. To make this agreement legally binding a commercial lease agreement in South Dakota is signed. This lease must abide by the statutory provisions of Title 43, Chapter 32. The lease agreement will also outline the obligations of the lessor and the lessee.
Some of the essential elements of the South Dakota commercial lease agreement include:
After the legal names and addresses, the lease agreement should have the details of the rent. Often, the base rent is used as it is the minimum possible rent. There should also be an indication of the payment schedule. Unlike the rent charged in residential establishments, rent payable for the use of commercial space is always higher than the minimum amount since the tenant might have to pay for some or most of the expenses for the commercial space.
To understand what you will be paying for and how much you will be paying, here is a look at the basic types of commercial lease:
Gross Lease: in this lease, a tenant only pays the base rent as a fixed amount, and the landlord pays for other costs. In some cases, the fixed amount may be inclusive of small operational expenses like the utilities and janitorial services.
Net Lease: this lease sets in motion a situation where the tenant pays the base rent as well as the main operating expenses for the space. These expenses range from the property taxes and insurance premiums to the common area maintenance costs (CAM). The net lease can be single or double with the tenant paying both property taxes and the insurance costs or the property taxes alone on top of the base rent. There’s also the triple net lease that is preferred by most landlords because it transfers all the property maintenance/ operating costs to the tenant. With the triple net lease, the tenant pays the base rent, property taxes, insurance premiums, CAM, utilities, and janitorial services. Unfortunately, this is one of the most expensive leases.
Modified Gross Lease: this lease involves the payment of the base rent and a portion of the property expenses that are shared between the landlord and the tenant.
Percentage Lease: if you are leasing space in a shopping center or a mall, you may have to pay the base rent and a percentage of your gross income.
The other important element relating to rent is the escalation. Escalation is the amount by which landlords are legally allowed to increase rent annually. It is a cost that covers inflation effects on landlords. The escalation value may be negotiable if calculated based on a specific amount or a percentage. In other cases, the escalation is calculated using an indexed value from the consumer pricing index.
The lease term is crucial in leasing commercial spaces. It determines how long you will be in business in that location. Every South Dakota commercial lease agreement has a lease commencement date or an event that signals the commencement date. Since most businesses open their doors weeks or days after signing the lease, the commencement date cannot be the same as the effective date/ the date the lease is signed. The commencement date may however be similar to the rent commencement date.
Besides the commencement date, leases also have lease termination dates or events that signal lease termination. This brings us to the two main types of commercial real estate lease agreements: the fixed term and the periodic lease.
The fixed term lease has a definite end date, and there should be no lease termination notice – the lease terminates naturally. And, unless there is an express provision in the lease, the terms cannot be changed or rent increased.
The periodic lease, on the other hand, lacks a lease termination date although either party can terminate the lease by issuing a lease termination notice. If provided for in the lease agreement, the terms may change, and the rent increased. The lease is also renewable.
Don’t forget that you may have a short-term or a long-term lease depending on your business needs and how established it is.
Maintenance and repairs
When negotiating the terms of the lease, make sure that the lease has a clause that outlines the party responsible for main structural repairs and maintenance services. Often, the tenant bears the responsibility for the non-structural repairs.
Along with maintenance and repair costs, is the element of ADA compliance. Before signing the lease, check whether it is ADA compliant or not. If not, the lease should outline expressly the party responsible for the improvements needed to make the commercial space ADA-complaint.
Indemnification: this outlines the extent to which the landlord and the tenant are responsible for casualty or losses concerning third parties.
Subleases and assignment
Can you sublease and assign the third party rights and obligations to the property if you sell your business or require a bigger space?
The other important considerations include security deposits, signage, parking, termination and relocation rights, exclusivity clause and permitted uses of the commercial space.
Would you like to get started with a commercial lease for your startup in Brookings, Aberdeen, Sioux Falls, Rapid City, Watertown, Pierre, Mitchel or any other city in South Dakota? Get our free commercial lease agreement forms today.