A Subordination, Non-Distrubance and Attornment Agreement (SNDA) is an agreement between a building's lender, tenant and landlord that protects the tenant in the even of a building foreclosure.
If no SNDA is in place, in the event of a foreclosure, the lender has the right to cancel the tenant’s lease. While for practical purposes, the lender is rarely going to cancel a paying tenant’s lease, there are some scenarios in which this can happen.
Why would the lender cancel the lease of a rent paying tenant?
The tenant is paying below market rent and there is demand for the space at a market rent
The tenant’s lease contains options that would deter other potential tenants from leasing the building
The tenant’s lease contains terms that make the building undesirable to a potential buyer of the building
The tenant’s credit is subpar making the building less attractive to potential buyers
The lender decides that the tenant’s use of the space conflicts with the highest and best use for the building
The tenant’s occupancy will make it difficult for another larger tenant to expand
The lender sees more demand for the building as a vacant building that they can sell to a user
Will most landlords and lenders agree to a SNDA?
The short answer is no. Most landlords don’t want to make this concession as it requires dealing with their bank and it isn’t “market” to grant a SNDA unless the tenant will occupy a large percentage of the building.
What about the document itself?
The SNDA is separate from the lease document but should be added to the lease as an exhibit
Make sure it gets fully executed and memorialized prior to or at the same time as lease signing
Make sure the SNDA requires future lenders to agree to it
Like any contract, look at the specific language within the SNDA as all are slightly different
Have a real estate attorney review both the lease and your SNDA to make sure your rights are protected
What do you do if you can’t get a SNDA agreed to?
It is important to be aware of the landlord’s capital position. Have your representative research the debt on the building and take a look at the building’s occupancy and tenant mix to provide you an opinion as to the risk of a foreclosure. After gathering the information, make a calculated decision as to whether or not to move forward with the lease.
John H. Pope