Most commercial leases provide that the tenant will attorn to, or recognize, any purchaser of the property at a foreclosure sale as the new landlord. The provision usually states that the subordination will be automatically effective, but that the tenant will enter into a subordination and attornment agreement if the landlord so requires. If the tenant is investing any significant amount of money into the leasehold premises, the tenant will want to require the landlord to obtain a non-disturbance agreement from the lender, ensuring that the tenant’s occupancy of the premises will continue, undisturbed, if the lender forecloses on its mortgage or deed of trust. Both the lender’s and the tenant’s concerns usually are addressed in one single Subordination, Non-Disturbance, and Attornment Agreement (called an SNDA).

Landlords and tenants should consider having the form of the initial SNDA, between the tenant and the landlord’s existing lender, negotiated at the same time the lease is negotiated, and having the final form agreed upon before the lease is executed. The last thing the parties want is to execute a lease, and then have the build-out delayed because of protracted negotiations over the SNDA, or worse, having the tenant try to terminate the lease because of the failure to agree upon an SNDA. Most lenders have a form SNDA with which they are comfortable, but most tenants will request some revisions to that form that require negotiations between the lender and the tenant. Finalizing the initial form of SNDA at the same time as finalizing the lease will avoid the potential for delays or disputes down the road.

Some tenants, especially large tenants with strong bargaining power, will request that the form of the SNDA be attached to the lease as an exhibit, and that the landlord be required to use that form for all SNDAs entered into during the term of the lease. Generally, landlords will avoid agreeing to this request, if possible, because the landlord does not want to hinder its ability to finance the property in the future with the requirement that any new lender accept this form of SNDA.

Commercial Real Estate Lawyer Can Help:

Mandi R. Hunter, with experience in complex commercial property transactions, can negotiate commercial leases either for the tenant or the landlord. Give her a call today before signing on the dotted line.

Kansas City Commercial Real Estate Attorney, Mandi R. Hunter, Building Legal Solutions.