Friday, December 19, 2014

Commercial Tenants and Subordination, Non-Disturbance and Attornment Agreements





By Bruce B. May and Alan P. Christenson

In Hans Christian Andersen’s “The Emperor’s New Clothes,” an emperor is left exposed after the fine clothing promised by two weavers turns out to be of no more substance than his own vanity. Subordination, non-disturbance and attornment agreements, also known as SNDAs, can similarly leave a commercial tenant exposed if not obtained, carefully reviewed and, as necessary, negotiated.

An SNDA is an agreement among a tenant, landlord and typically the landlord’s lender under which the tenant subordinates its lease to the lender’s lien on the property and promises to recognize the lender as landlord in the event the lender acquires the property, typically through foreclosure. In return, the lender agrees to leave the tenant’s lease in place so long as the tenant is not in default. The SNDA is commonly incorporated into the terms of a commercial lease. A lender whose lien attaches to the property subject to the lease is subject to terms of the lease and the tenant’s rights.

What many tenants do not realize is that first, if the lease is entered into after the lien is attached, that the provisions in the lease do not control and many lenders will not agree to the provisions unless the tenant executes an SNDA in lender’s form. The lender’s form of SNDA will often contain significant exclusions to a lender’s promise of non-disturbance that will leave an unsuspecting tenant exposed to unanticipated liabilities. These exclusions often include the following together with others:
  • The tenant will not have the ability to exercise certain remedies in the lease, such as the right to offset or abate rent; 
  • The lender will not be bound by any amendments or assignments made without lender’s consent; 
  • The lender will not be liable for any of the prior landlord’s acts or omissions; and 
  • The lender will not be liable for any unpaid tenant improvement allowance. 
There are just a few of the exclusions. A tenant should consult with capable legal counsel to review and negotiate the terms of the SNDA and avoid the cost and embarrassment of being left exposed by an SNDA that does not offer a tenant sufficient protection.
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