Most commercial tenants never think about their landlord’s mortgage — until the landlord defaults on it. An SNDA agreement is the document that determines what happens to a tenant’s lease if that happens, and without one, a tenant can find their lease terminated through no fault of their own.
The Three Components, Broken Down
Subordination — the tenant agrees that their lease is subordinate (legally secondary) to the landlord’s mortgage, meaning the lender’s rights in the property take priority over the tenant’s lease rights.
Non-Disturbance — in exchange, the lender agrees not to disturb the tenant’s occupancy if the lender forecloses on the landlord, as long as the tenant isn’t in default under the lease. This is the protection that matters most to tenants.
Attornment — the tenant agrees that if the lender forecloses and becomes the new property owner, the tenant will recognize the lender (or a subsequent buyer at the foreclosure sale) as the new landlord and continue performing under the lease.
Why This Matters: What Happens Without an SNDA
Without a non-disturbance provision, a foreclosure can, under certain circumstances, extinguish a lease that is subordinate to the foreclosed mortgage — potentially terminating an otherwise fully performing tenant’s occupancy simply because the landlord defaulted on a loan the tenant had nothing to do with. This risk is precisely what non-disturbance protection is designed to eliminate.
When Lenders Require Subordination
Most commercial mortgages require tenant leases to be subordinate to the loan, since lenders want their security interest in the property to take priority. Tenants generally have limited ability to refuse subordination outright — but the leverage point is negotiating for a corresponding non-disturbance agreement in exchange.
What a Strong Non-Disturbance Provision Should Include
- Confirmation that the tenant’s lease will continue on its existing terms if the lender forecloses
- Recognition that the tenant’s rights to any tenant improvement allowance obligations, if unpaid at the time of foreclosure, may or may not carry over — this varies and should be addressed explicitly
- Clarity on whether the successor landlord (the lender, or a subsequent buyer) is bound by all lease terms, or only certain ones
When to Request an SNDA
Ideally, SNDA negotiation happens at lease signing, incorporated as a condition to lease execution or as an early post-signing deliverable. Tenants with significant negotiating leverage — larger footprint, longer term, well-capitalized business — are generally better positioned to insist on a strong non-disturbance provision as a condition of the deal.
Why Smaller Tenants Often Skip This
SNDAs are sometimes treated as a formality reserved for large corporate tenants, but any tenant investing significant capital into tenant improvements or relying on a specific location for their business has real exposure if the landlord’s lender forecloses without a non-disturbance agreement in place. It’s worth raising in negotiation regardless of tenant size.
Negotiating a commercial lease and want to protect your occupancy against a landlord’s potential loan default? Brent A. Levison, P.A. has over 25 years of experience negotiating SNDA agreements for commercial tenants. Contact the firm today for a consultation.
The information in this article is provided for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a qualified attorney.