What’s an SNDA and Do I Need One?

Category: Real Estate

By Attorney Laurie Raab 

My landlord defaulted on its mortgage, and I’m being evicted. Huh? How is that possible when I have a lease?

If there was a mortgage on the property at the time you entered into your lease, the lease is subordinate (inferior) to the mortgage, so if the landlord defaults on its mortgage and the lender forecloses, the purchaser of the property at the foreclosure sale is within its rights to evict you. What can you do to protect yourself?

Consider entering into a Subordination, Non-Disturbance, and Attornment Agreement (SNDA). An SNDA is an agreement entered into between the tenant, the landlord, and the landlord’s lender. It grants the mortgage priority over the lease. If the mortgage pre-dates the lease, that’s already the case, but lenders sometimes require an SNDA when a lease pre-dates the mortgage. In addition to the subordination language, the tenant in an SNDA also agrees to attorn to the lender (i.e., agrees to recognize the lender as the landlord) in the event the lender forecloses on the property. In exchange, the lender agrees not to disturb the tenancy as long as the tenant is not in default of the lease. The SNDA may also require the lender’s consent to any lease amendments, although this requirement may be negotiable in long term leases and/or in leases for a sizable portion of the mortgaged property. The longer the term and the greater the square footage, the more likely the lender may be willing to modify its form SNDA. It is also common for the SNDA to require the tenant to give the lender notice of any landlord defaults under the lease and the opportunity for the lender to cure any defaults before the tenant can exercise any remedies.

SNDAs are often overlooked by tenants and unfortunately, they sometimes come to regret not having one. They assume, wrongly, that they are protected because they have a lease. However, the lease is only with the landlord. A foreclosing lender or a purchaser of the property at a foreclosure sale is under no legal obligation to honor the lease. While some lenders, depending on the circumstances, may allow the tenant to remain in the premises as long as they pay rent, a third-party purchaser of the property at the foreclosure sale may have other plans for the property, and choose to evict the tenants.

If you’re spending money on tenant improvements or if the expense of or disruption to your business in having to relocate if you’re evicted by your landlord’s lender is a concern for you, then during lease negotiations, you may want to request an SNDA as a condition to the lease. Your landlord may be averse to it. Landlords do not like contacting their lenders, and lenders often charge a fee for an SNDA. Also, some lenders, depending on the circumstances, are unwilling to enter into one. However, if you have enough leverage or if your landlord knows their lender will say yes, then the landlord may be willing to request an SNDA from their lender.

Whether you need an SNDA is a matter of risk assessment. If you are leasing space in a large office building, there is a greater chance that a lender or purchaser at a foreclosure sale will honor the lease. After all, they will want the rental income. Also, if the building is fully occupied by credit worthy tenants, there may be less concern about the landlord defaulting on its mortgage. However, a tenant who is leasing space in a small office building, may be more at risk of eviction because a purchaser at the foreclosure sale may decide to occupy the entire building themselves. It’s best to consult your attorney to discuss whether you need an SNDA based upon your particular circumstances.

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