Commercial leases often contain an SNDA. It is an agreement between the tenant and the landlord that describes the specific rights of the tenant and the landlord. The SNDA may also provide information on other third parties such as the lender`s lender or the purchaser of the property. There are three parts: the subordination clause, the non-interference clause and the attornation clause. Attornment in a commercial lease is similar. The attorning clause in an SNDA requires the tenant to recognize the new owner of the property as its owner, whether the new owner purchased the property through a normal sale or enforced execution. The clause also requires the tenant to continue to pay rent to the new landlord for the remainder of the tenancy period. In the subordination clause in an SNDA, the tenant accepts that his interest in the property is subordinated to the interests of a third-party lender. The landlord can use the commercial property to secure financing after entering into a tenancy agreement with a tenant. As a result, most lenders would require tenants to subordinate their credit units to the lender`s mortgage interest.
The subordination clause gives the third-party lender the option to terminate the lease in the event of commercial enforced execution. A non-interference clause or agreement gives the tenant the right to continue to occupy the rented premises as long as they do not have a default. The tenant can also rent the premises after the sale or closure of the property. The non-interference clause supports the rights of tenants in the premises even when the landlord does not comply with the mortgage obligations and the property is closed. In practice, subordination rarely affects tenants, whereas their leases could technically be terminated in enforced execution or bankruptcy. Even if the property goes through a foreclosure or bankruptcy, the new landlord usually wants to keep the tenants instead of finding new ones. Subordination can, however, be used to compel a tenant with sub-market tenancy conditions to renegotiate his tenancy agreement. The “Attornment” part of the agreement, which is perhaps the most confusing part of an SNDA, simply means that the tenant agrees to recognize the buyer as a new owner under the lease upon the forced sale. This is only one way to formalize the legal relationship between an owner and the new owner of the property. Tenants should ensure that the non-disruptive language is reciprocal. The lender can distribute a tenant who does not pay rent. Similarly, tenants should not be required to remain in the unit if the landlord or lender has violated the tenancy agreement.
Tenants should remember that SNDAs primarily assist the landlord and their lender. Most commercial leases have the SNDA language. However, tenants can and must negotiate the most favourable terms when negotiating their leases, focusing on the free language. Pre-negotiating these conditions allows tenants to avoid a nasty surprise if the landlord is in financial difficulty. Non-disruption, as the name suggests, is the lender`s promise not to interfere with the tenant`s right not to occupy the premises in the event of foreclosure. In many states, including Ohio, the enforcement of the mortgage automatically terminates the lease, unless the lease is superior or the mortgagee has expressly agreed that the lease will survive. Non-interference agreements are generally combined with the confirmation of the tenant`s subordination and subordination obligations in an SNDA. The extent of incident protection will vary, which I hope will be discussed in a future article. Of course, not all landlords will agree to grant each tenant a rental contract without malfunction. A large tenant can rightly insist on obtaining an SNDA and could even attach to the rental agreement his SNDA form requested as an exhibition. Smaller tenants may not have a SNDA at all; they are simply not important enough for the owner to disturb the lender.