Subordination, Non-Disturbance, and Attornment (SNDA) Agreements
Whether you’re the landlord or tenant of a commercial property, you’ll want to know what a subordination, non-disturbance, and attornment agreement is and how it will affect you in the event of a foreclosure.
Commercial leases often contain what is called a subordination, non-disturbance, and attornment agreement, or SNDA. SNDAs are agreements between a tenant and a landlord that lays out certain rights of the tenant, the landlord, and other third parties, such as the landlord’s lender or a purchaser of the property. There are three parts to an SNDA: the subordination clause, the non-disturbance clause, and the attornment clause. Read on to find out why a tenant or landlord would want to include an SNDA in their commercial lease.
The Subordination Clause
By signing off on a subordination clause in an SNDA, a tenant agrees to allow its interest in the property to become junior to the interest of a third-party lender. The landlord will want the flexibility to seek financing secured by the commercial property after entering into the lease with the tenant, and most lenders will require that any tenants occupying the property subordinate, or make junior, their leasehold interests to the lender’s mortgage interest.
The purpose of a subordination clause is to give the third-party lender the option to terminate the lease in the event of commercial foreclosure. Why would a tenant agree to give a lender this right? In many cases, commercial tenants don’t have the negotiation power to refuse to sign a subordination clause. To protect its leasehold interest, the tenant should do its best to make sure the SNDA includes a non-disturbance clause, which is described below.
The Non-Disturbance Clause
In exchange for agreeing to subordinate its interest to a lender and recognize any new owner as the landlord (see “The Attornment Clause,” below), a tenant should ensure that there is a strong non-disturbance clause in the SNDA. A non-disturbance clause or agreement gives a tenant the right to continue occupying the leased premises as long as the tenant is not in default, even after the property is sold or foreclosed. The non-disturbance clause provides some assurance to the tenant that its rights to the premises will be preserved even if the landlord does not keep up with its mortgage payments and the property is foreclosed. This can be very important to a business tenant since moving its location can lead to unexpected expenses and great inconvenience. Whether the landlord will agree to include a non-disturbance clause in the SNDA depends on the negotiation power of the tenant.
The Attornment Clause
An attornment is the act by which a tenant acknowledges a new owner of the property as the new landlord. The purpose of the attornment clause in an SNDA is to obligate the tenant to recognize any new owner of the property as its landlord, whether the new owner acquires the property in a normal sale or following a foreclosure. The main goal of the clause is to ensure that the tenant continues paying rent to the new landlord throughout the remainder of the lease term, even if the property is foreclosed or sold.
Whether you are a commercial landlord or tenant, it is important to keep in mind that there are many legal intricacies involved with commercial leasing and it may be beneficial to employ the services of a qualified attorney to help you through the process of preparing or agreeing to a subordination, non-disturbance, and attornment agreement.