By Tenant Advisory Group · Updated
Short answer
An SNDA is an agreement among you, the landlord and the landlord’s lender. You agree that your lease is subordinate to the mortgage, and the lender agrees not to disturb your occupancy if it forecloses, as long as you are not in default. An estoppel certificate is your signed statement of the lease’s current status. Both matter most when a building is financially stressed.
Your landlord has a lender, and the lender comes first
Most office buildings are financed. The owner borrowed against the property, and the lender holds a mortgage. Nearly every landlord form lease includes a subordination clause, in which the tenant agrees that its lease ranks below that mortgage and any future one.
Rank matters if the owner stops paying its loan. Depending on state law and the documents, a foreclosure can put a lease that is junior to the mortgage at risk, or leave the tenant dealing with a new owner who does not consider itself bound by what the old one promised. How this works in a particular state is a legal question for your attorney. The business point is simple: a subordination clause with nothing given back asks you to accept a risk you cannot see or control.
For a company that has invested in a build-out, moved its team and planned around a multi-year term, losing the lease or its negotiated rights because of someone else’s loan default is a serious outcome. The SNDA is the standard tool for managing it.
What the three parts of an SNDA do
SNDA stands for subordination, non-disturbance and attornment. Each word is a separate promise.
- Subordination. You confirm that your lease is junior to the lender’s mortgage. This is what the lender wants.
- Non-disturbance. The lender agrees that if it takes the property, it will recognize your lease and leave you in possession on the lease terms, provided you are not in default beyond cure periods. This is what you want.
- Attornment. You agree to treat whoever takes title through foreclosure as your landlord and keep paying rent. This gives the lender or buyer a building with income in place.
The lease clause to negotiate is the link between the first and second. Ask that your subordination to any mortgage be conditioned on receiving a non-disturbance agreement from that lender. For the loan already on the building, ask that the landlord deliver an SNDA from the current lender at or shortly after lease signing. For future loans, ask that subordination be effective only when the new lender signs one.
Landlords often offer to use "commercially reasonable efforts" to obtain an SNDA. That is a promise to ask, not a promise to deliver. How firm the commitment can be depends on your leverage, the size of your lease and the lender involved.
Reading the lender’s SNDA form
Lenders have their own SNDA forms, and the non-disturbance promise comes with exceptions. A typical form says that a lender who becomes the landlord will not be responsible for certain things the prior landlord did or owed. These carve-outs are where a tenant’s real money sits.
- If the landlord has not paid our tenant improvement allowance, will the lender be bound to fund it, or may we offset it against rent?
- Is the lender bound to complete landlord work that was promised but not finished?
- Is the lender responsible for returning our security deposit if it never received it from the landlord?
- Will the lender honor free rent and rent credits that have not yet been used?
- Is the lender bound by lease amendments signed without its consent?
- Does the lender recognize our expansion, renewal and termination options?
- Are offset or abatement rights we negotiated against the landlord preserved against the lender?
- Must we give the lender notice of a landlord default and extra time to cure before we use any remedy?
Not every point can be won. Lenders are consistent about refusing liability for a prior owner’s past defaults. The ones worth pressing are those tied to money you are counting on in the near term: unfunded allowance, unfinished landlord work and unused free rent. If the lender will not take on the allowance, a right to offset unpaid allowance against rent, recognized in the SNDA, is a common fallback.
The riskiest window is between signing the lease and receiving the last dollar of the improvement allowance. Protections against landlord default matter most during that period.
Estoppel certificates
An estoppel certificate is a short document in which you confirm facts about your lease to a third party, usually a lender making a new loan or a buyer purchasing the building. They rely on it, and after signing you are generally held to what it says.
Typical statements include that the lease is in effect and has not been amended except as listed, the dates of the term, the current rent and the date through which it is paid, the amount of the security deposit, and that the landlord is not in default and you have no claims against it.
Leases require tenants to return an estoppel within a set number of days, and some forms treat a failure to respond as a default or as agreement with whatever the landlord wrote. Three practices protect you.
- Negotiate a realistic response period and remove any clause that makes silence a default or gives the landlord power to sign on your behalf.
- Limit what you must certify to factual statements about the lease, made to your knowledge, and not new promises or waivers.
- When one arrives, check every statement against the lease file and correct it. List open issues, such as unpaid allowance, disputed operating expense charges or unfinished landlord work, before you sign.
Ask for the right to be reciprocal. A landlord estoppel is useful when you sell your company, raise debt or sublease, because the other side’s counsel will want the landlord to confirm the lease is in good standing.
Checking the landlord before you sign
Tenants are asked for financial statements as a matter of course. It is reasonable to do some diligence in the other direction, especially when you are relying on the landlord to fund construction.
- Who owns the building, and how long have they held it?
- Is there a mortgage, who is the lender, and will that lender sign an SNDA?
- Is the loan current, and is it maturing or being refinanced during our build-out?
- Is the building for sale or under contract?
- How will the improvement allowance be funded, and can it be escrowed or otherwise secured?
- Are building services, staffing and maintenance at normal levels, or visibly cut back?
- Is there a ground lease under the building, and if so, will the ground lessor also recognize our lease?
A heavily vacant building, deferred maintenance, turnover in management or a loan known to be in special servicing does not automatically rule a building out. Distressed owners sometimes offer strong economics. It does change what you should require: a signed SNDA before you spend money, security for the allowance, and clear remedies in the lease.
Remedies if the landlord fails to perform
Form leases describe tenant defaults in detail and landlord defaults in a sentence. Ask for more balance. The usual requests are a defined cure period for landlord defaults, a right to perform urgent repairs yourself and be reimbursed if the landlord does not act, rent abatement when essential services are interrupted for an extended period, and a right to offset amounts the landlord owes you, such as unpaid allowance, against rent.
Each of these is negotiated and each has conditions, and lenders will want notice and their own chance to cure. Your attorney should draft and review them. The role of your broker is to raise them early and to know which landlords and buildings call for the strongest version.
Tenant Advisory Group represents tenants and buyers, and when we compare buildings for technology companies we look at ownership and financing alongside rent, so that SNDA and allowance protections are part of the proposal and not a late request.
Frequently asked questions
Do small tenants get SNDAs?
Sometimes. Lenders are more willing to negotiate with larger tenants, but many will sign their standard form for smaller ones. It is worth asking in the proposal, particularly if you are funding or relying on a significant build-out.
Does a foreclosure automatically end my lease?
It depends on state law, the order of priority and the documents. An SNDA is meant to remove that uncertainty by having the lender agree in advance to recognize your lease. Ask your attorney how it applies to your building.
What if the estoppel certificate the landlord sends is wrong?
Correct it before you sign. You are generally bound by what you certify, so list any amendments, unpaid amounts or open disputes instead of signing the form as presented.
What happens to my security deposit if the building is sold?
Leases usually say the landlord may transfer the deposit to the buyer and is then released. Ask that the release apply only if the buyer actually receives the deposit and assumes the obligation to return it.
This guide is general information, not legal, tax or financial advice. Have your attorney review any lease before you sign it.