A Subordination Non-Disturbance and Attornment Agreement (an “SNDA”) is a document that is typically required by a lender for a landlord. Sometimes the lender will leave off the non-disturbance portion of the agreement, as the lender is only interested in the subordination and attornment. The subordination is the agreement of the tenant to subordinate its rights to the lender’s rights in the lender’s mortgage such that the tenant’s rights under the lease will be subject to any and all rights of the lender pursuant to the mortgage. The attornment is the agreement of the tenant to accept a purchaser at a foreclosure as the landlord. The purpose of the subordination and attornment agreement is to protect the lender in the event of a default under the mortgage and/or foreclosure of the mortgage so that the lender has the ability to collect rents (typically through a rent receiver), and if foreclosed, permit the lender or purchaser at the foreclosure to take possession of the property and step into the shoes of the landlord under the lease.
A wise tenant will negotiate into a lease that the tenant’s agreement to subordinate to the lender’s mortgage shall be conditioned on obtaining a non-disturbance agreement. The non-disturbance portion of the SNDA provides that so long as the tenant is not in default under the lease, the lender will not disturb the tenant’s use, possession and enjoyment of the leased premises, nor will the tenant’s rights be impaired. In addition, many subordination agreements will provide that a tenant’s right of first refusal option to purchase is not binding on the lender. A tenant should limit such restriction to only where the mortgage is not being paid off as part of the sale to the tenant. A well drafted SNDA can actually provide comfort to a tenant where it properly preserves the Tenant’s rights under the Lease by requiring the lender to honor the terms of the lease upon a foreclosure and allow the tenant to continue to occupy the space. It is important that a tenant be proactive about SNDA negotiations by properly preserving its rights in the lease.
If you are a tenant negotiating a lease, speak with an attorney about preserving your rights in SNDA negotiations with the Landlord’s lender to ensure your tenancy is not disturbed after a foreclosure.