Commercial leases often contain what is called a subordination, non-disturbance, and attornment agreement, or SNDA. SNDAs lay out certain rights of the tenant, the landlord, and related third parties, like 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. Including an SNDA in a commercial lease benefits both tenants and landlords.
When tenants sign off on a subordination clause in an SNDA, they agree to allow their interest in the property (also known as a “leasehold”) to become junior to the interest of a third-party lender.
Commercial landlords often require subordination clauses in their leases to preserve the possibility of using the building as loan collateral: Most lenders will not allow a commercial property to serve as security for a loan unless their mortgage interest is superior to any tenants’ leasehold interests. This means that, in the event of commercial foreclosure, the lender will have the option to terminate the tenants’ lease.
Why would a commercial tenant agree to give a lender this right? In many cases, commercial tenants don’t have the negotiating 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.
In exchange for agreeing to subordinate their interest to a lender’s interest and recognize any new owner as the landlord (see “The Attornment Clause,” below), tenants should ensure that there is a strong non-disturbance clause in the SNDA. A non-disturbance agreement gives tenants the right to continue occupying the leased premises as long as they are not in default—even after the property is sold or foreclosed.
The non-disturbance clause provides some assurance to tenants that their rights to the premises will be preserved even if the landlord doesn’t fulfill its duty to make payments to the lender. Being confident that they can remain in a location for the full term of the lease is important to business tenants, as changing location can potentially lead to unexpected expenses, inconvenience, and loss of customers. Whether a landlord will agree to include a non-disturbance clause in the SNDA depends on the tenants’ negotiating power.
An “attornment” is the act by which tenants acknowledge a new owner of the property as their new landlord. The attornment clause in an SNDA obligates the tenants to accept a new owner as their landlord, regardless of whether the new owner acquires the property in a normal sale or following a foreclosure. The clause provides that, in the event ownership is transferred, the new owner essentially replaces the former owner in the lease, assuming all of the former owner’s rights and responsibilities. Perhaps most importantly, the clause requires the tenants to continue to pay rent regardless of who owns the property.
Whether you are a commercial landlord or tenant, it's important to keep in mind that there are many legal intricacies involved with commercial leasing and it might be beneficial to employ the services of a qualified attorney to help you through the process of preparing or agreeing to a SNDA.