976 N.W.2d 749
S.D.2022Background:
- Peska Properties leased a 7,150 sq ft retail space to Northern Rental Corp. (Northern)/Steve Willis from June 2012 to May 2022; Peska advanced a $50,000 build-out loan amortized as additional rent.
- Willis/Northern closed the store in 2017 but paid rent until July 2019, then defaulted and vacated; 34 months remained on the original lease.
- Peska re-let the premises to Mills Aftermarket Accessories, Inc. (Radco) under a new 7‑year lease effective Aug. 1, 2019; Peska paid Radco a $25,000 build‑out allowance and Radco’s rent for the remaining 34 months was substantially less than the rent due under Northern’s lease.
- Peska sued Willis/Northern for unpaid rent, the remaining build‑out loan balance, reimbursement for the $25,000 paid to Radco, costs to procure a new tenant, and fees; the primary dispute at trial was how to calculate lost-rent damages and allocation of the $25,000.
- The circuit court computed damages using a ‘‘blended’’ per‑square‑foot rate averaged over Radco’s entire lease term and apportioned the $25,000 pro rata between the parties; it denied attorney fees to Peska.
- The Supreme Court reversed and remanded: it held the blended‑rate approach and the pro rata allocation of the build‑out allowance were legal errors and vacated the attorney‑fees ruling for reconsideration.
Issues:
| Issue | Plaintiff's Argument (Peska) | Defendant's Argument (Willis/Northern) | Held |
|---|---|---|---|
| Proper method to calculate lost-rent damages | Damages = unpaid rent under Northern lease for remaining 34 months minus rent Radco will pay for that same period (i.e., actual lost rent) | Use a ‘‘blended rate’’ averaging Radco’s whole 7‑yr lease per‑sq‑ft to compute damages | Court: Circuit erred; must calculate damages as the undisputed difference for the remaining 34 months (remand to enter judgment accordingly) |
| Mitigation obligation | Peska mitigated by marketing and re‑letting to Radco; Radco’s terms were commercially reasonable | Blended method justified because Radco’s lease had lower early rents and higher later rents—blending reflects commercial reality | Court: Peska used commercially reasonable efforts; no finding it acted unreasonably—mitigation supports awarding the lost‑rent difference |
| Allocation of Radco’s $25,000 build‑out allowance | Peska seeks full recovery (cost incurred because tenant breached) | Willis argues both parties benefited (improvements left by Willis reduced build‑out cost), so apportionment across Radco’s full term is fair | Court: Circuit’s proportional apportionment was legal error; remand to recalc so Peska is made whole consistent with breach damages |
| Prevailing‑party attorney fees under lease | Lease entitles prevailing party to fees; Peska should be prevailing given breach and damages | Circuit found no prevailing party and denied fees | Court: Fee denial vacated; remand to reconsider fees in light of corrected damages determination |
Key Cases Cited
- Weekley v. Wagner, 810 N.W.2d 340 (S.D. 2012) (damages are factual issues for the trier of fact)
- Stern Oil Co., Inc. v. Brown, 908 N.W.2d 144 (S.D. 2018) (damages aim to make injured party whole)
- McKie v. Huntley, 620 N.W.2d 599 (S.D. 2000) (damages must be reasonably certain; need a rational relationship between calculation method and claimed loss)
- Excel Underground, Inc. v. Brant Lake Sanitary Dist., 941 N.W.2d 791 (S.D. 2020) (plaintiff must prove damages were caused by the breach)
- Arrowhead Ridge I, LLC v. Cold Stone Creamery, Inc., 800 N.W.2d 730 (S.D. 2011) (mitigation may be resolved as a matter of law when record shows reasonable diligence)
- Tri‑State Refin. & Inv. Co. v. Apaloosa Co., 452 N.W.2d 104 (S.D. 1990) (standard of review for factual findings: clearly erroneous)