Skip to main content

Exit WCAG Theme

Switch to Non-ADA Website

Accessibility Options

Select Text Sizes

Select Text Color

Website Accessibility Information Close Options
Close Menu
Sweeney Law, PA Fort Lauderdale Business Lawyer
  • Exceptional Service
  • ~
  • Results Driven

THE SNDA CLAUSE IN COMMERCIAL LEASING – SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT

LegalLaw

Commercial leases frequently include what is known as a subordination, non-disturbance, and attornment agreement, commonly referred to as an SNDA. SNDAs explain certain rights of the tenant, the landlord, and associated third parties, such as the landlord’s lender or a purchaser of the property. There are three components to an SNDA: the subordination clause, the non-disturbance clause, and the attornment clause. Overall, contracts that use an SNDA in a commercial lease benefit both tenants and landlords.

The Subordination Clause

A subordination is a contractual agreement by the tenant that its leasehold interest in the collateral property, or portion thereof (the subject property of the lease), is subordinate either to the mortgage or to the lien of the mortgage. This feature is significant because if a tenant subordinates to the mortgage itself, then the tenant becomes bound by the terms of the mortgage, which may be different than the terms of the lease. Otherwise, if a tenant only subordinates to the lien of the mortgage, then only the tenant’s possession is subordinated, and consequently the lease provisions will control, subject to any provisions set forth in the SNDA.

Commercial landlords regularly require subordination clauses in their leases to maintain the possibility of using the building as loan collateral. Most lenders will forbid a commercial property to serve as security for a loan unless their mortgage interest is higher than any tenants’ leasehold interests. In other words, the lender will have the option to terminate the tenants’ lease in the event of commercial foreclosure.

The Non-Disturbance Clause

Non-disturbance is a contractual agreement by the lender not to disturb tenant’s possession of the premises under the lease in the event of a foreclosure. In plain terms, a tenant should require a non-disturbance agreement from a lender in any situation in which the tenant is agreeing to subordinate the lease to the lien of the loan. It is also recommended that tenants seek a non-disturbance agreement unilaterally from any existing lender when the tenant is entering the lease, since the lease automatically would be subordinate to the lien of the loan by virtue of being chronologically behind the lien. Lenders are normally willing to grant non-disturbance to a non-defaulting tenant in return for contractual subordination of the lease to the lien of the loan.

The non-disturbance clause offers some assurance to tenants that their rights to the premises will be preserved even if the landlord does not accomplish its duty to make payments to the lender. Being assured that they can remain in a location for the full term of the lease is important to business tenants, as changing location can possibly lead to unforeseen expenses, inconvenience, and loss of customers. Whether a landlord will agree to include a non-disturbance clause in the SNDA varies based on the tenants’ negotiating power.

The Attornment Clause

Basically, in the context of an SNDA, an attornment is the mechanical process by which the tenant agrees to recognize the lender, or the foreclosure transferee if not the lender, as the new landlord under the lease after the foreclosure is completed. It is this process that constructs the direct privity of contract between the lender or other foreclosure transferee and the tenant under the lease. It is important to note, this clause usually requires the tenants to continue to pay rent regardless of who owns the property.

Conclusion

Tenants need to evaluate the risk of whether the landlord is likely to default on its mortgage loan and consider the effect that a forced removal from the premises would have on the tenant’s business. The tenant may want to restructure the lease transaction. When a lender is reviewing a lease or an SNDA, the reviewer should remember that the review is not only for things that may affect a borrower’s ability to pay the loan, but also for obligations a lender may step into if it becomes a landlord. There is no one-size-fits-all approach to reviewing an SNDA.

Sweeney Law, P.A. Has Vast Experience with Commercial Real Estate Issues

Brendan A. Sweeney, Esq., LL.M., of Sweeney Law, P.A., a boutique firm in Fort Lauderdale, Florida, regularly handles complex litigation that concerns SNDA clauses throughout Florida. Brendan A. Sweeney, Esq., LL.M. is an AV Preeminent Martindale Rated Attorney, that has been recognized as a Florida Super Lawyer in 2020 and 2019, Florida Legal Elite in 2019, and as a Florida Super Lawyer Rising Star in 2018, 2017, 2016, 2015, and 2014. If you have any questions and/or issues regarding commercial real estate and SNDA’s then contact Sweeney Law, P.A. at (954) 440-3993 immediately to protect your rights.

www.sweeneylawpa.com.

Facebook Twitter LinkedIn

By submitting this form I acknowledge that form submissions via this website do not create an attorney-client relationship, and any information I send is not protected by attorney-client privilege.

Skip footer and go back to main navigation