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SNDA Agreements: Protecting Your Commercial Lease From Mortgage Default

Laird Morgan, Lawyer April 26, 2024

Commercial real estate transactions can be an intricate dance. 

An often underestimated yet crucial document that continues to gain prominence is the SNDA Agreement. While the acronym may sound like faded legal jargon to some, it's an indispensable safeguard for property owners and tenants alike.  

In this comprehensive guide, I'll unravel what SNDA agreements are, why they're critical in commercial leases, and how to strategically integrate them into your real estate transactions. 

SNDA Agreements: What Are They? 

An SNDA agreement stands for Subordination, Non-Disturbance, and Attornment. Initially, it may seem like one of those archetypal daunting documents that sit at the bottom of business agreements until it’s needed; but, the power an SNDA wields over the flexibility of leasehold interests can make or break a tenant’s commercial aspirations. 

Protection from Mortgage Defaults: A Closer Look 

Subordination in an SNDA agreement ensures that the tenant's leasehold rights are recognized, but ranked below the interests of the lender in the event of a default.  

This arrangement, while seemingly preferential to lenders, also facilitates the availability of financing for landlords, which in turn, can lead to better lease terms for tenants. 

Non-Disturbance is arguably the tenant's strongest protection in the face of a mortgage default.  

This clause guarantees that tenants will not be evicted in the aftermath of a foreclosure, allowing businesses to operate uninterrupted. It acts as an assurance that their investment in the leased property, as well as the continuity of operations, will not be jeopardized by the landlord's financial distress. 

Attornment comes into play post-foreclosure, ensuring the tenant's agreement to recognize the lender or any new property owner as their new landlord.  

This transition, structured by the SNDA, is designed to be seamless, preventing any operational discontinuity. While attornment adjusts the tenant's allegiance to the new property owner, its primary purpose is to maintain the lease's existence, thereby protecting the tenant's rights and presence on the property. 

Ultimately, SNDA agreements are a crucial tool for tenants to ensure their occupancy rights are preserved, even in the instability of a mortgage default scenario. They enable tenants to secure their business futures by providing operational continuity, preserving the lease terms negotiated with the initial landlord, and maintaining their investment in leased spaces. In doing so, they provide a critical layer of financial and operational security for tenants, securing their standing in the face of potential disruptions caused by a mortgage default. 

The Legal Process of Obtaining an SNDA Agreement 

Securing an SNDA agreement requires a strategic and methodical approach. Speaking from my extensive experience as a commercial real estate attorney, here's how I guide my clients through obtaining an SNDA agreement: 

  1. Initial Assessment: Begin with a thorough review of the current lease agreement to identify the existence and adequacy of an SNDA clause in protecting the tenant's interests. This sets the stage for negotiation or drafting a new SNDA provision. 

  1. Engagement with Stakeholders: Start discussions with the landlord and their lender, highlighting the mutual benefits of an SNDA agreement. For landlords, offering such protections can enhance their property's appeal to prospective and current tenants. For lenders, it secures the stability of rental income from tenants, crucial after foreclosure. 

  1. Drafting the SNDA: Negotiate and draft a comprehensive SNDA agreement tailored to the client's needs, ensuring the subordination, non-disturbance, and attornment provisions offer maximum protection and business operation continuity for the tenant. 

  1. Review and Finalization: Share the draft with all parties for review, engaging in negotiations to refine the terms satisfactorily. Advocate for the client's best interests, ensuring the SNDA agreement's language provides robust protection. 

  1. Execution: Execute the SNDA agreement once all parties agree to the terms, following proper protocols to legally bind the agreement. Oversee this process to prevent any pitfalls that could invalidate the agreement. 

  1. Follow-up and Record Keeping: Assist in correctly filing the executed SNDA agreement and advise clients on maintaining accessible records. Ensure tenants have easy access to their SNDA agreement in case of foreclosure to uphold their rights. 

Throughout each of these steps, my objective is to secure my client's occupancy and operational continuity with the least amount of disruption possible. By leveraging my knowledge and negotiation skills, I strive to make the process as smooth and favorable as possible for all involved. 

Practical Tips for Navigating SNDA Agreements 

Now that we've shed light on the importance and legal underpinning of SNDAs, here are some practical tips for property professionals looking to strengthen their leasing arrangements. 

  • Start discussions about an SNDA early in lease negotiations to secure premium tenants. 

  • Maintain open communication between tenants and landlords during the SNDA process to resolve differences. 

  • Seek expert real estate and legal advice to secure and enforce robust SNDA terms. 

  • Use the SNDA as a tool in lease negotiations for proactive risk management. 

  • Regularly review and update lease documents, including SNDAs, to align with changing market conditions and legal requirements. 

Reach Out for Legal Assistance 

SNDA agreements might seem like the fine print in the grand scheme of real estate transactions, but they are the safety nets that can prevent complete upheaval for both landlords and tenants. They facilitate the coexistence of lease agreements with mortgage loans, and in so doing, foster a more stable and prosperous commercial real estate environment.  

When navigating commercial real estate transactions, the value of skilled legal guidance cannot be overstated.  

At Laird Morgan, Lawyer, my experience spans across the nuanced landscape of commercial leases, including the pivotal SNDA agreements that safeguard your investment and operational continuity. Whether you're drafting a new lease, negotiating an SNDA, or simply seeking to understand your current lease's protections against mortgage defaults, I'm here to assist and advocate for your best interests

Contact my firm in Collin County, Texas, today for compassionate, knowledgeable, and strategic support in all facets of commercial real estate.