Legal Blog

This Week in Real Estate: SNDA’s and Why They are Important

As discussed in last week’s episode of This Week in Real Estate, the SNDA is important to the following parties in a real estate financing transaction:  the Borrower landlord, the tenant and the mortgage lender, having potential benefits and pitfalls for each of the involved parties.

Landlord’s Perspective:  The SNDA is, for the most part, an agreement between the lender and tenant, the landlord is generally not concerned about its specific terms. Because the SNDA is typically a requirement for the funding of the loan, however, the landlord is absolutely concerned that the SNDA be signed. The borrower landlord should take three steps:

  • Determine whether its leases require the tenant to sign an SNDA in the form specified by the lender. (Note for landlords, your leases should include this requirement).   This will determine whether the landlord is requesting the tenant to sign or demanding that it do so pursuant to the terms of the lease agreement.
  • Determine whether the lender will require SNDAs from all tenants or whether it is willing to accept SNDAs from tenants occupying a certain percentage of the square footage of the property or only from certain major tenants.
  • Most importantly, stay involved in the process of obtaining the tenants’ signatures on the SNDAs. Depending on the tenant, this may take some time to get the SNDA returned and completed properly.


Lender’s Perspective:  The lender needs to be in the first lien or priority position.  If the lease was executed prior to the mortgage, but for tenant subordinating to the mortgage, the lease would be in a superior position.  Therefore, the lender requires the lease to be subordinated to its mortgage and, as stated above, is normally a requirement for funding the loan to the borrower landlord.

If the lender can obtain the subordination agreement from the tenant without giving the non-disturbance agreement in return, then the lender is in the supreme position following foreclosure of being able to decide whether it wants to keep the lease or terminate. If the lender finds that rent under the lease is below market, it can insist upon an increase upon threat of termination of the lease.  As discussed below, the tenant should request a non-disturbance provision in exchange for the subordination.  The lender still receives the following benefits from a typical SNDA:

  • The attornment provision establishes privity of contract between the lender and the tenant, which allows the lender to enforce each and every provision of the lease. Without such privity of contract, the lender can enforce only those covenants in the lease that “run with the land.”
  • The lender will be relieved from honoring rent that has been paid to the landlord more than 30 days in advance, as well as any security deposits that were paid to the landlord/borrower but not delivered to the lender.
  • The tenant will be required to notify the lender of any default under the lease by the landlord and to give the lender an opportunity to cure the default.
  • The landlord and tenant will be prohibited from materially amending or terminating the lease without the lender’s consent.
  • The tenant will be required to pay the rent directly to the lender if the lender notifies the tenant that the landlord has defaulted on the loan.


Tenant’s Perspective :   When presented with an SNDA, it is imperative for the tenant should to make sure it includes a non-disturbance provision.  At the very minimum, the foreclosing lender simply agrees that if it becomes the landlord, it will not disturb the tenant’s possession, so long as the tenant performs under the lease; the foreclosing lender does not agree to undertake any of the landlord’s obligations under the lease. This may be significant because some leases impose major obligations on a landlord (e.g., to build tenant improvements, maintain the premises, or pay taxes). While such minimal non-disturbance clauses were once common, today most tenants can negotiate for and obtain a non-disturbance clause in which the lender agrees that it will fully recognize the lease and perform all the obligations under the lease imposed on the landlord that accrue while the lender holds title to the premises.

When entering into a new lease, a tenant should consider requiring that its landlord provide an SNDA from its existing lender. Failure to obtain a non-disturbance agreement from the existing mortgagee will mean that the lease is subject to being terminated if the mortgage goes into default and the lender forecloses. This can be disastrous for a tenant that has invested substantial sums in improvements or has even constructed entire buildings, for example, under a ground lease.

The SNDA is confusing to most real estate professionals and many lawyers who are not experienced in commercial real estate and is therefore often overlooked. As discussed, a tenant, for example, could lose its entire investment in its leased premises (and lease) because the landlord defaulted on its loan payments.  If appropriately drafted, it can be beneficial to all three parties: the lender, the landlord, and the tenant. Yet it can also carry significant pitfalls. Guidance from an experienced real estate lawyer is strongly recommended when presented with an SNDA.

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Jim Landon has practiced real estate law since 2002 and has been involved in real estate investment and construction for most of his life. Jim’s practice focuses on real estate transactions and land use.

Jim represents individuals and privately and publicly held companies in the purchase, sale, leasing, financing, and development of real property. He also represents title insurance companies on commercial purchases and refinancing transactions, as well as providing third-party legal opinions regarding Delaware law related to Delaware entities.







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