When Do I Need a Subordination, Non-Disturbance and Attornment Agreement?

Many commercial leases for business owners or management have subordination, non-disturbance and attornment types of agreements in the contractual documentation.

These are between the tenant that rents the building or land and the landlord. These agreements explain the rights afforded to the tenant, the landlord any other third parties involved to include the lending institution anyone else that has bought the property. This document or process is shortened to SNDA and has the three parts of the subordination, non-disturbance and attornment clauses. How these affect the renter, leaseholder or landlord depends on different factors and the relationship to each.

Subordination Clause Explained

The subordination clause part of the SNDA has a direct impact on the tenant as he or she agrees as per his or her signature to permit his or her interest in the property rented
to become secondary to any interest of a third-party financial lender. Landlords with an interest in a property usually seek to find whatever financial security for a commercial building or land through a lease with a tenant. Most lending agencies involved in these deals require that the tenants that are part of the lease and have signed the subordination clause to become secondary or junior in involvement with the lease holding interests with the mortgage interests that the lender has become included in with the property.

The third-party lender is given the option to terminate any lease if a commercial property is foreclosed through a subordination clause in a contract. The question then becomes why this is beneficial, and the tenant may consider not agreeing to this. Unfortunately, most leaseholders of a commercial building or land have no choice in the matter. However, in protecting the interest in the lease holding, the tenant should ensure that the SNDA document has a non-disturbance clause. This may mean a lawyer is used to protect his or her interests and ensure documentation is either altered slightly or has certain terms included before signing.

Non-Disturbance Clause Explained

The subordination clause is usually not optional, but in protecting his or her interests, the non-disturbance term should be included in the SNDA. This would provide the tenant with the right to stay on the land or in the building that is on the lease provided he or she does not default. This is possible in most circumstances even if the property in question is sold, foreclosed or a similar concern arises. This clause protects the tenant and his rights on the premises even if the landlord cannot keep mortgage payments satisfied with the lending agency. This is of great importance to a commercial tenant whose business is derived from the location. Having this clause in the contract depends on how well the tenant is able to convince the landlord, or the lawyer that has been hired may make convincing arguments.

The Attornment Clause Explained

An attornment clause in a contract is what has the tenant acknowledging that a new owner of the property, through purchase or acquiring it, is the new landlord he or she will be dealing with in the future. This is to ensure in and SNDA that there is a clause in which to honor a new owner of the property who may have obtained the building or land through a foreclosure, sale or other means. This means if the previous owner could not pay the mortgage, the lending institution initiated foreclosure, auctioned the property and sold it to a new individual, or there was a sale because the landlord prior was unable to keep it. This clause transfers all interests from the other landlord to the new one so the remainder of the lease is kept intact no matter how he or she became the new owner.

Legal Assistance with Contracts’ Clauses

The relationship between a commercial tenant and landlord is usually straightforward without many conflicts causing issues, but this is often only due to certain terms in contracts that stipulate the conditions to follow. For the landlord, this would mean that he or she is benefiting from the association, but the tenant should also be able to continue with his or her business without interruption. When the building is no longer under the supervision of the landlord on the contract, this could become problematic unless certain stipulations provide for these issues. It is vital that a lawyer assist in drafting, altering or keeping these records, terms and conditions to help the tenant. The legal representative fights for the rights of his or her client.

Provided by HG.org

Disclaimer: Every effort has been made to ensure the accuracy of this publication at the time it was written. It is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication. Readers considering legal action should consult with an experienced lawyer to understand current laws and.how they may affect a case.

Find a Lawyer