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SNDA stands for Subordination, Non-Disturbance and Attornment. An SNDA agreement is really three agreements in one. The simple definition in plain English of an SNDA agreement is a tenant not having the right to cancel a lease, and the lender not having the right to cancel a lease, when the landlord defaults on the mortgage.
In other words, if a landlord defaults on a loan and the lender is the new or temporary landlord, everything remains the same. Neither the tenant nor the new landlord have any worries about the lease not being valid and binding.
The tenant remains in the space and continues to pay rent and both parties honor the lease.
Here is how it breaks down:
The tenant?s agreement that the mortgage is more important than the lease. Therefore the lease is subordinate to the mortgage, and if the landlord defaults on the loan obligation the lease can be terminated.
This is the part of the lease that protects the tenant. It is the lender?s agreement that in exchange for the subordination, the lender will obey the lease and allow the tenant to remain in place. The tenant?s lease is not to be disturbed. In other words, it overrides subordination with respect to remaining in the premises.
The tenant?s agreement to accept the lender as the new landlord. In other words, the tenant agrees that the lease is still in place with the new owner and cannot walk away from the lease. This is reciprocal protection of non-disturbance that the landlord receives.
A landlord is normally not overly concerned about what SNDA agreements state, since it is primarily an agreement between the two parties left standing ? the tenant and the lender.
If SNDA agreements are part of the requirements of securing a loan, then the landlord will be concerned about ensuring the agreements are signed, especially since it is the landlord that has a relationship with the tenants.
On the other hand, if the lender sees that the property could have redevelopment potential, it may not want an SNDA agreement in place, in which case the tenants will want protection and will be seeking SNDA agreements but the landlord would not want to comply as those agreements would lower the value of the property in the event of a mortgage default.
The best outcome for a lender is having SNDA agreements that have tenants agree to subordination and attornment, but also do NOT have a non-disturbance commitment.
In other words, the lender is in full control ? the tenants have agreed that the mortgage trumps the leases, they accept the lender as the new landlord and have agreed to be kicked out if the lender so chooses.
This would give the lender quite a bit of leverage ? if the rents are below market rates, the lender can threaten termination of the lease, unless the tenant agrees to pay more rent.
Let?s say you sign a 10 year lease for commercial space and have 9 years remaining. Then your landlord defaults on his loan obligations.
The lender recognizes a new opportunity with your property. Perhaps you are paying below market rent and they can find another tenant to pay a higher amount. Or maybe the air rights are not being fully used and they can sell the whole property to a developer who can build a high-rise tower.
If you do not have an SNDA agreement in this scenario then the new landlord could cancel the lease, which will cost you time, money, aggravation and you may have sunk a lot of money into tenant improvements and you will get no compensation for those costs.
If you are a small tenant in a large property your odds of obtaining an SNDA are likely slim, but your need for it is lower as well.
For example, if you rent 2,000 square feet in a 1M square foot office building, the lender that ends up with the building will likely want to keep all the tenants in place and sell the building as-is. When a building is already the highest and best use there is no ability to knock the building down and build a larger commercial property (or residential property).
If you are a high percentage of the building, even if you are a small tenant, your odds of obtaining an SNDA will increase.
For instance, if you are a 3,000 square foot tenant looking at a unit that is 50% of a 6,000 square foot commercial building, the landlord may be desperate to get you into the space and would support an SNDA agreement to get his building 100% leased.
In other words, the odds of obtaining an SNDA agreement comes down to your leverage.
The process of getting an SNDA has to start at the time that you are interested in the space but have not committed to it. You must ask the landlord to draft such an agreement.
As the vast majority of commercial real estate brokers do not have any experience with SNDAs, it is important to ensure you hire someone with experience in this field.
If you want to learn more about what is in your lease and if the SNDA is mentioned in your lease, learn more by clicking HERE.
That is because the landlord normally already has the loan in place and the lender would like to keep all options available to them. It is to their benefit to have the right to remove all tenants ? a right they can either choose to trigger or not.
However, if the lender wants to foster a long term working relationship with the landlord, this is an opportunity for them to be flexible with the landlord?s needs. After all, an SNDA agreement is a leasing incentive ? you may have your space options shortlisted to two locations and want to move ahead with the property that can secure an SNDA contract for you.
The lender also may never have any intentions of terminating the leases anyways, and in that event they may just decide to provide the SNDA to keep all parties happy.
It is always best to get an SNDA agreement signed before entering into a commercial lease with a landlord as that is when you have the most negotiating leverage. If an SNDA agreement is not formed, then you can simply walk away from the lease negotiation.
It is a three-way agreement, between the tenant, landlord, and the landlord?s lender.
There is no standard timeframe set out for an SNDA review time. Smaller landlords may not even have an SNDA form or template.
SNDAs can be both recorded or not recorded, and the difference is that a recorded SNDA will offer stronger protection for the tenant, since third party potential purchasers will be well aware that a tenant?s lease cannot be cancelled or terminated as a result of the landlord?s foreclosure.
SNDAs should always be separate documents. The lease is an agreement between the tenant and the landlord. The SNDA is a three-way agreement, but it is essentially between the tenant and the lender ? so it should be a separate document.
It should also be separated as you do not want a lender to claim that your non-disturbance rights were extinguished when the landlord defaulted on the mortgage.
Many tenants confuse SNDAs and estoppel certificates. Estoppel certificates or letters are sent to tenants when a landlord is selling or refinancing a building. SNDAs come into play when a landlord defaults on the mortgage.
Before agreeing to a sublease agreement, ask the sub-landlord if there is an SNDA agreement in place. Subleases do not allow for any negotiating of lease terms ? you must inherit everything that was agreed to. The sub-landlord is still responsible for the lease and if there is an SNDA agreement associated with the lease, you will want to review that document to ensure if it is still enforceable in the event of a sublet.
1. Have someone review your lease to see if you have any existing wording that obligates the landlord to have an SNDA agreement in the first place. We can help you out with that HERE.
2. If the landlord is obligated to have an SNDA agreement, then follow up on that.
3. Determine what negotiating leverage you have and discuss with your landlord the viability of obtaining an SNDA.
4. Find a good real estate lawyer in your state or province to craft an SNDA agreement or review one that the landlord drafts.