What Is an SNDA in a Commercial Lease?

If your landlord has a loan on the building, it has pledged the property to the lender through a mortgage or deed of trust. You signed the lease but not the loan documents. The lender signed the loan documents but not the lease. Holland & Hart describes an SNDA as the document that connects the lender and the tenant and spells out their relationship, particularly what happens if the landlord defaults on the loan.

You may see an SNDA at lease signing, or a letter may arrive years into the term when the landlord refinances or sells. Either way, it deserves a real review. The title sounds like routine paperwork, but it can change what you are able to enforce if the building changes hands through foreclosure.

This guide explains what the three parts mean and why each side wants them. For the negotiating strategy and how to think about a financially stressed landlord, see our guide to SNDA, estoppel and landlord default protections.

To subordinate is to rank behind. In a subordination provision, you agree that your interest in the property is junior to the lender’s mortgage or deed of trust. Nolo’s overview on AllLaw notes that lenders usually will not accept commercial property as collateral unless their interest ranks above tenant leases.

The lender’s reasoning is about control. Holland & Hart explains that subordination allows the lender to name the tenant in a foreclosure action, and that the lender is then not required to recognize the lease. It could decide to keep the tenant or remove it, perhaps because the lease rent is below market. This is especially significant to the lender if your lease existed before the loan was made.

Many leases already contain a subordination clause. It may make your lease subordinate to current and future loans automatically, so read that clause even if nobody has sent you a separate SNDA.

Subordination alone creates the tenant’s problem. Holland & Hart says that when the mortgage is superior to the lease, a foreclosure can extinguish the tenant’s interest and leave no right to stay. Nolo’s overview similarly says that in a commercial foreclosure, the lender can terminate the lease of a subordinate tenant. The exact result depends on state law and the documents, which is a question for your attorney.

Non-disturbance is the answer. The lender promises that after a foreclosure, as long as you keep paying rent and performing your other lease obligations, it will recognize your right to remain and treat the lease as still in force. Think about what depends on that promise: the build-out you paid for, your address, your team’s commute and your rent for the remaining term.

Watch for a document that omits it. Holland & Hart notes that a tenant sometimes receives only a subordination and attornment agreement, which lacks the main provision that benefits the tenant. If the words non-disturbance do not appear, or the promise is heavily conditioned, raise it with your attorney before signing.

To attorn means to recognize someone as your landlord. In this provision, you agree that if the lender or a foreclosure buyer takes the building, you will treat that party as your landlord and keep performing the lease. Nolo’s overview puts it simply: the new owner essentially replaces the former owner in the lease.

This gives the lender what it wants, a building with a rent-paying tenant after foreclosure. It also means you should not assume a foreclosure gives you a way out of the lease. If you want a right to leave in that situation, raise it with your attorney.

Taken together, the three parts are a trade. You give up rank and accept a new landlord if the loan fails. In exchange, the lender gives you a promise that you can stay.

The three promises are only the start. Lenders usually send their own form, and the rest of it can narrow what you would receive from a successor landlord. Holland & Hart lists some common additions, and FLB Law, a Connecticut firm, flags others:

• Copies of notices. You may have to send the lender copies of notices you give the landlord, so the lender can monitor or fix a problem.
• No liability for past defaults. The lender may not be responsible for the prior landlord’s defaults that arose before it took over.
• Lender consent to amendments. You may need the lender’s approval before amending the lease, which can affect a future renewal.
• Disclaimers of landlord obligations. Lenders may disclaim tenant improvement allowances, construction commitments and repair obligations.

That last point matters most early in a lease. Ballard Spahr notes that SNDAs often state the lender is not obligated to fund tenant work, which is one reason to consider the landlord’s financial capacity if it has promised significant money for your build-out.

Start with the lease. Holland & Hart suggests that the evaluation begin there, because the lease may set requirements for the SNDA. Then go through the document with your attorney. Tenant Advisory Group represents tenants and buyers, and when we negotiate a lease we raise the SNDA during the lease negotiation, because that is when a tenant generally has the most leverage to request it.

• ✓Does our lease make our subordination to current or future loans conditional on receiving non-disturbance?
• ✓Does this document actually contain a non-disturbance promise from the lender?
• ✓What exactly would cost us that protection? Is it limited to a default beyond notice and cure periods?
• ✓Is the lender’s form consistent with our rights, such as renewal options, expansion rights and allowances?
• ✓Does the lender disclaim an allowance or landlord work we are still owed?
• ✓Would we keep any offset or abatement rights in the lease?
• ✓Do we need lender consent for a future amendment or renewal?
• ✓Does the document state the lender’s notice address, and can we keep it current?
• ✓Is the signed version from the current loan holder, and do we have a fully executed copy?

FLB Law recommends requesting an SNDA when you sign a lease and including a provision that makes subordination to future mortgages conditional on a commercially reasonable SNDA. Whether a landlord agrees depends on your negotiating power, Nolo’s overview notes, so raise it early rather than treating it as a closing detail.