When negotiating commercial leases it is important for the Tenant to obtain a Subordination and Non-Disturbance Agreement, often referred to as the “SNDA” especially in today’s economic environment where foreclosure activity has significantly increased.
There are many parties who have legal rights in a commercial real estate project. For example, a lease grants certain rights to a tenant, and a loan grants other rights to a lender.
A subordination clause provides that the tenant agrees that his rights under the lease are lesser than, or subordinate to, the rights the lender has under a loan. Subordination is expected of almost all tenants: it is a reasonable and common requirement.
In return for a tenant’s agreement to subordinate its rights under the lease to those of a lender under its loan, most lenders should agree not to disturb or interfere with the tenant in the event of a foreclosure of the property. This would assume, of course, that the tenant is in full compliance with the terms of the lease.
From the tenant’s perspective, when the tenant is in a subordinate position to the lender, if the lender forecloses on the property, the lender can terminate the lease and the tenant’s ability to remain in the space.
Therefore, to protect itself from this process, the tenant will need the lender to execute a nondisturbance agreement whereby the lender agrees that if there is a foreclosure, provided the tenant isn’t in default, the tenant can remain, and the lease won’t be terminated.