Subordination, Non-Disturbance and Attornment Agreements

A commercial lease typically contains a provision that requires the tenant’s lease to be subordinate to any current or future lender. This provides the property owner more flexibility with respect to financing. It also puts the tenant at risk in the event of foreclosure, because the lender is not required to recognize the lease and could terminate or attempt to renegotiate the lease. A commercial tenant should know its rights and priority with respect to the lender.

A Subordination, Non-Disturbance and Attornment Agreement (“SNDA”) provides the details for the rights between the landlord, tenant and lender. The SNDA describes when the tenant’s rights are subordinate to the lender’s rights. It also assures that the tenant’s rights will be preserved, or not disturbed, in the event the landlord defaults and the lender forecloses. Finally, the SNDA generally provides that the tenant will attorn to a new landlord. The term “attornment” means the tenant agrees to remain a tenant after a change in ownership

In a normal lease negotiation, the focus tends to be on the financial terms of the lease. The parties should not overlook the importance of an SNDA agreement, especially in the current economic environment.

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About the Author:
Mike Hall is an attorney at the Idaho Business Law Group, PLLC, located in Meridian, Idaho. You can find him at idahobusinesslawgroup.com, email at mike@idahoblg.com.