One of the documents you will see in commercial real estate loans is a subordination, non-disturbance and attornment agreement, known in the business as an SNDA. Many clients who do not encounter this particular document on a daily basis will call or email me to ask for a translation.
The SNDA is a document executed by (1) the lender of real property, (2) a tenant at that property and (3) usually – but not always – the owner of the property borrowing money from the lender. The purpose of the SNDA is threefold:
1. The SNDA subordinates the rights of the tenant under its lease to the lender’s mortgage or trust deed on real property. This is important to a lender because it wants to make sure its lien and its rights are superior to those of the tenants. Many commercial leases have language automatically subordinating the lease to the loan, but: (a) some do not; (b) some large tenants or tenants will clout will negotiate that provision out of the lease or condition it on an SNDA (more about that in a moment); and (c) despite the self-subordination language in many leases, some lenders ask for the SNDA (i) to add certain additional provisions, (ii) out of an abundance of caution or (iii) because they have to check that box on their loan checklist. (Yes, I have encountered that scenario at least once in my career.)
2. The SNDA typically provides that, so long as the tenant pays the rent and complies with the terms of the lease, the lender, if it takes over the property in a foreclosure, deed-in-lieu or otherwise, will not disturb the tenant’s quiet enjoyment and tenancy at the property. This is important for the tenant because a lender otherwise can, in a foreclosure situation, reject a lease and kick out a tenant. Admittedly, I have never had this happen to me (knock on wood), although I know of occasional situations where this occurs.
3. Finally, the SNDA provides that the lender and tenant will attorn to one another. Attorn, you may ask? Simply put, all attornment really means is that if the lender forecloses, the lender cum landlord will recognize the tenant as the tenant, and the tenant will recognize the lender (or its designee) as the new landlord.
What about the landlord/borrower? Usually the landlord’s role is the facilitator or go-between between its two competing parties, the lender and the tenant. It can be frustrating sometimes to chase down the documents but they are important to both parties and are sometimes heavily negotiated. Also, while the “guts” of the documents are often similar, note that SNDAs frequently have some different provisions, depending on the lender and the deal and the circumstances.
Whether you are an owner, a tenant or a lender and have questions or issues regarding SNDAs, please feel free to email me or call me at 312.373.7242 and I will do my best to help.
