SNDAs are helpful for both commercial real estate lenders and tenants, and they help them build a relationship that might not have existed otherwise. While lenders often seek them out when mortgaging to property owners, if it is a lender’s first time foreclosing on a property, the presence of an SNDA in the agreement might lead to confusion.
If there is an SDNA clause in a lender’s agreement, there are several things to consider when foreclosing on a property, and these considerations may help a business decide how to structure their SNDA. A foreclosure expert is the best way to navigate the specifics.
A Subordination, Non-Disturbance and Attornment Agreement (SNDA) is a crucial document in commercial real estate transactions where a property is both mortgaged and leased. While the acronym may seem complex, SNDAs serve an important purpose in defining the relationships and priorities between landlords, tenants, and lenders. This guide will examine what an SNDA is, who needs one, and how it benefits each party.
What is an SNDA?
A SNDA is a contract between a renter, a landlord, and a lender that spells out each party’s rights and duties. The key components include:
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Subordination: The lender’s mortgage takes precedence over the tenant’s lease, giving the lender more weight.
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Non-Disturbance: If the landlord doesn’t pay, the lender can’t end the tenant’s lease as long as the tenant isn’t behind on payments.
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Attornment The tenant agrees to recognize the lender as their new landlord if they foreclose
By signing an SNDA, the tenant agrees to subordinate their interests to the lender’s, while the lender agrees not to disturb the tenant’s possession. This balancing of interests protects both parties.
Who Needs an SNDA?
When buying commercial property with tenants who have already moved in, SNDAs can be helpful. The three key parties who benefit are:
Landlords
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An SNDA makes it easier to get financing, since lenders have assurances their interests come first.
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Having tenants sign SNDAs may be a condition of obtaining an attractive loan.
Tenants
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Tenants gain protection from unexpected lease termination if the landlord defaults.
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Non-disturbance gives tenants stability if the property is foreclosed.
Lenders
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The SNDA gives lenders priority status over existing leases.
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Lenders can foreclose smoothly without terminating valuable tenant contracts.
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Non-disturbance helps avoid costly eviction procedures.
While optional, having an SNDA protects each party and creates a clearer set of ground rules.
Benefits of an SNDA for Landlords
For commercial landlords, an SNDA agreement offers several key advantages:
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Easier financing – Banks feel more secure lending if their mortgage takes priority over existing leases. An SNDA provides this priority.
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Higher property value – Properties with tenant SNDAs in place are worth more as they offer stability even in foreclosure.
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Smooth foreclosures – If the landlord defaults, the SNDA prevents lengthy evictions that might limit sale value.
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Tenant retention – By guaranteeing occupancy, the SNDA helps landlords retain reliable long-term tenants.
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Favorable lease terms – Landlords can sometimes negotiate better lease rates in return for non-disturbance rights.
Overall, SNDAs allow landlords to access better financing while making their property more valuable to lenders and tenants.
How Tenants Benefit from an SNDA
For tenants, the SNDA provides critical protections:
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Lease stability – The non-disturbance clause guarantees tenants can remain for the lease term even if the property is foreclosed.
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No sudden rent increases – If the lender takes over, the existing lease rate remains in place.
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Avoid relocation costs – Tenants can avoid unplanned costs of moving out early.
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Business continuity – Ongoing business won’t be disrupted by an unexpected lease termination.
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Negotiating leverage – Tenants can sometimes negotiate lower rents by agreeing to SNDA terms.
By signing an SNDA, tenants ensure they can continue operating without disruption, even in a worst case scenario.
Why Lenders Require an SNDA
Lenders benefit most from the subordination component of an SNDA:
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First lien rights – The SNDA gives lenders first priority access to the property as collateral.
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Foreclosure protection – Lenders can recover the property without terminating valuable leases.
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Higher loan approval – Borrowers are more likely to qualify for attractive financing with an SNDA in place.
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Stable collateral value – Existing leases remaining intact helps preserve property value.
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Smooth ownership transfer – Attornment facilitates an orderly transition if the lender takes over.
For lenders, the SNDA boosts the security of the loan while preserving assets like reliable tenants.
The SNDA in the Foreclosure Process
If a landlord defaults, the SNDA guides the foreclosure process between lenders and tenants:
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The lender sends tenants a Notice of Default, copying them on default notices sent to the landlord.
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Tenants continue paying rent to the landlord until notified otherwise.
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Once foreclosure is completed, the lender formally notifies the tenants to begin paying rent to them.
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As the new owner, the lender takes over as landlord but must honor existing leases.
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Tenants should review their lease and SNDA rights in the event of getting a Notice of Default.
The SNDA helps ensure a smooth transition with minimal business disruption for tenants.
Key Takeaways on SNDAs
The SNDA is an important safeguard for landlords, tenants and lenders engaged in commercial property deals. Key points to remember include:
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The SNDA contract defines each party’s rights and responsibilities clearly upfront.
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Properly structured, an SNDA provides protections and assurances for all parties.
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Landlords benefit by being able to access attractive financing more easily.
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Tenants gain critical occupancy stability even if the property is foreclosed.
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Lenders reduce lending risks by having priority status over existing leases.
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In foreclosure, the SNDA guides the transition process to minimize business disruption.
By understanding how SNDAs function and align interests, landlords, tenants and lenders can utilize them effectively to reduce risks in commercial transactions. Consult an attorney to ensure your SNDA fully protects your interests.
What is an SNDA?
SDNA stands for Subordination Non-Disturbance and Attornment. It essentially guarantees that if the landlord defaults, neither the landlord nor the lender can cancel a tenant’s lease. Each individual word references a separate provision; some lenders may desire some provisions and not others, depending on their goals.
If there is no provision appointing priority to one agreement over another, agreements will typically follow the first-in-time, first-in-right model. Order of priority indicates how insurance policies are doled out in an adverse event. The Subordinate provision ensures that the lender has a first lien right, making any leases subject to the mortgage. The lender is then free to foreclose on the property.
The Non-Disturbance provision is the piece of the agreement that appeals to tenants. In the event that the landlord defaults on his loan and the lender must foreclose the property, the lender will honor the tenant’s lease. This prevents the lender from evicting a tenant that may have taken advantage of the favorable deal that comes with a mostly vacant property.
The Attornment provision is the one that likely appeals to lenders. If a property is foreclosed upon, the lender becomes the new landlord, if only temporarily. The tenant agrees to this and promises to honor the lease, even if the landlord is no longer a part of the agreement.
Why Do Lenders Want SNDAs?
Tenants want SNDAs because they assure that tenants can continue to lease their property as long as they keep their payments current, and external circumstances will not see them evicted. Tenants can also avoid paying a higher rent, should a lender come to own the property.
Lenders benefit from SNDAs because this gives the mortgage priority over individual leases. They can transfer ownership of the property from one hand to the other without fearing the tenants will abandon their leases.
SNDAs are typically hard to attain because landlords don’t want them, and it may be difficult to get them to agree to a mortgage with an SNDA attached. Landlords might agree, however, if they are eager enough for the loan. Additionally, tenants are more likely to lease knowing they have the protection of an SNDA.
What is an SNDA and Do I Need One?
FAQ
When do I need A sNDA?
Normally, the need for a SNDA will arise as one of a lender’s closing conditions for funding a loan. Certain tenants may also request a SNDA as a closing condition or post-closing obligation to be satisfied by its landlord in a leasing transaction, but this is less common.
What is a sNDA & why do you need one?
SNDAs are helpful for both commercial real estate lenders and tenants, and they help them build a relationship that might not have existed otherwise.
When should a lender use an sNDA?
A lender will usually want to use an SNDA if the lease would come before the mortgage if there isn’t one. In order to ensure that the terms of the mortgage will govern, the lender will insist that its borrower (which is also the landowner and the landlord) and the tenant enter into an SNDA with the lender.
Do I need A sNDA If I’m a tenant?
If you’re a tenant of commercial property, it’s possible that your landlord has asked or will ask you to enter into a Subordination, Non-Disturbance and Attornment Agreement, or “SNDA. ” It is often a requirement in the lease agreement.
Who can benefit from an sNDA?
Multiple parties can benefit from executing an SNDA, including: Lender – A lender takes a substantial risk when taking a lien on real property. In the event that they buy the property or in other situations, the terms of an SNDA in a lease agreement can protect them.
When should a sNDA be circulated?
Since a SNDA will not be one of the primary documents in a loan transaction, there is sometimes a tendency for the landlord and lender to treat it as an innocuous “checklist” item and wait until late in the transaction to circulate the lender’s form to any tenants.
Why would a lender want an snda?
A lender typically wants to have an SNDA because of its subordination clause if, in the absence of such an agreement, the lease would be prior to the mortgage.Jan 16, 2014
Who benefits from an snda?
An SNDA can benefit commercial landlords, commercial tenants, and lenders taking out a mortgage on a commercial property.
Who requests an snda?
If you’re a tenant of commercial property, it’s possible that your landlord has asked or will ask you to enter into a Subordination, Non-Disturbance and …Jan 30, 2018
Should an SNDA be recorded?
The parties will often require that SNDAs are recorded against title to the property, although recording is not required for an SNDA to be effective.Feb 11, 2020