How SNDA Agreements Can Simplify Your Life

 April 08, 2019

Commercial real estate transactions require rules to ensure that all parties receive fair treatment.  Some of these rules flow from federal and state laws.  The remainder of the rules result from the contractual arrangements between the parties.  An important part of commercial financing transactions involving leased property is the subordination, non-disturbance, and attornment agreement (the SNDA). 

In this article, we’ll explain what SNDA agreements are and why they’re important to the interested parties.  In addition, we’ll briefly touch upon the tenant estoppel.  A tenant estoppel helps establish certain facts in connection with a lease.  An SNDA is separate from a tenant estoppel.

What are SNDA Agreements?

In order to understand SNDA agreements, let’s quickly review the parties of interest. For an example, you can check out this SNDA agreement from the SEC. 

Video:  What is an SNDA?

The Parties of Interest to an SNDA

    1. The Property Owner:  The property owner has the right to possess, use, exclude from others and transfer the property.  In commercial real estate, the property owner is the borrower and landlord.  It borrows funds from a lender to acquire, construct, rehabilitate or refinance a property.  Also, the owner/landlord can lease space to commercial and residential tenants as a source of rental income.  The landlord can place a lien on commercial property belonging to a tenant if the tenant defaults on payments.
    2. The Lender:  A commercial property lender can be a bank, credit union, insurance company or other private money funding source.  Lenders make various types of loans, including mortgages, construction loans, acquisition loans, bridge loans and mini-perm loans.  Lenders want assurances that borrowers will repay them in full and on time.  The lender is a lien-holder that can foreclose on a property if a borrower defaults on a loan. 
    3. The Tenant:  The tenant is the lessee.  That is, it occupies space in the owner’s property according to a lease agreement.  A commercial lease lets the tenant occupy and use the leased space. It also allows the tenant to run a business from that space.  Importantly, the lease specifies how much the tenant pays the landlord in rent and fees.  Additionally, the lease might set out certain expenses, such as insurance, taxes and maintenance, that the lessee will pay.  In return, the lease protects the tenant from invasion of privacy, unplanned rent increases or eviction without cause.  Furthermore, tenants can make leasehold improvements to their leased property and benefit from those improvements.  Tenants who hire labor to make leasehold improvements must contend with mechanics’ liens.  Specifically, mechanics’ liens entitle builders, suppliers, contractors and others to redress for non-payment.

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Leasehold Interests

Under certain circumstance, leaseholders obtain favorable, below-market leases.  You can calculate the value of such a lease.  It is equal to the monthly discount from market rates times the number of months remaining in the lease.  Other items that increase a lease’s value include bonus payments that the tenant makes, leasehold improvements and prepaid rent.  A prospective tenant might make a bonus payment to ensure that it secures the lease. 

The value of a favorable lease is an asset for the lessee.  Any attempt to cancel a favorable lease can financially threaten the lessee.  For example, a landlord might try to evict a tenant if the property suffers major damage.  Thus, a tenant might have a financial claim against a landlord for the tenant’s leasehold interest exposure.


The SNDA is a set of agreements that augment the provisions of a lease.  To clarify, the SNDA can be part of the lease or a related document.  Critically, it explains certain rights belonging to the landlord, tenant and third parties, especially the lender.  That is, the SNDA’s three clauses preserve certain specified rights of the interested parties. 

Understanding the Clauses

The SNDA contains three important clauses, each preserving or extending the rights of an interested party.

The Subordination Clause of the SDNA – Part I

A typical subordination clause states the following:

The Lease now is and at all times shall continue to be subject and subordinate in each and every respect to the Mortgage and to the lien of the Mortgage and to any and all increases, renewals, modifications, amendments, supplements, extensions, substitutions, and replacements of the Mortgage, including, without limitation, amendments which increase the amount of the indebtedness secured thereby.”

The subordination clause benefits the lender by making the lender the first-lien holder for the property.  Normally, liens and financial interests accrue on a first-come basis.  For example, suppose the tenant signs a lease before the property closing.  In this case, the lease would have first-lien position for its leasehold interests.  Lenders want and most assuredly the first-lien position, and therefore the lender will insist upon including a subordination clause in the lease.  This clause gives the lender the first-lien position by subordinating and eliminating other liens.  In the case of default and foreclosure, the property’s sale proceeds would first reimburse the lender.  Only after making the lender whole would junior lienholders receive any money from the sale proceeds. 

A landlord asks a loan officer, Do real estate SNDAs need to be recorded?

The Subordination Clause of the SDNA – Part II

Through the subordination clause, the tenant gives up any right to the first-lien position.  Furthermore, the clause allows the lender to terminate the lease during a commercial foreclosure.  That’s because the termination of a senior instrument (the mortgage) terminates all junior instruments, including leases.  If the tenant had the first lien, the foreclosure wouldn’t affect the lease, even if a new landlord arrives.  Of course, the subordination clause eliminates this possibility.  However, the tenant can protect its rights with a non-disturbance clause, described below. 

The subordination clause of the SDNA affects the handling of fire damage or condemnation of a property.  This means that the first-lien will decide whether the lease or mortgage controls the aftermath.  For example, if the tenant has the first lien, the landlord might have to use the insurance proceeds for rebuilding.  However, if the lender has the first lien, the landlord can use the proceeds to pay off its mortgage.  Naturally, the same scenario applies to the use of condemnation proceeds. 

Landlords understand that a property will be more attractive to lenders if the lenders get the first lien.  Thus, it’s in the landlord’s best interest to include the subordination clause in the lease. 

The Non-Disturbance Clause of the SDNA

A typical non-disturbance clause reads as follows:

“So long as no default exists under the Lease or this Agreement beyond any applicable grace or cure period, the Lease shall not be terminated, nor shall Tenant’s possession of the premises demised under the Lease or other rights and options thereunder be disturbed in any foreclosure action or proceeding instituted under or in connection with the Mortgage unless such right would have existed if the Mortgage had not been made.”

The non-disturbance clause of the SDNA allows the tenant to keep its lease if the lender forecloses the property.  Furthermore, the lender cannot seize the tenant’s property should the owner default on the mortgage.  Naturally, the non-disturbance clause will not protect a tenant who defaults on lease payments.  The non-disturbance clause helps protect the tenant from costly relocation if the owner defaults.  In addition, if the tenant benefits from a below-market lease, the benefit will survive a foreclosure and new owner.  Without the non-disturbance clause, many tenants would be reluctant to sign the subordination clause. 

The Attornment Clause of the SNDA

A typical attornment clause reads as follows:

“If the interest of Landlord under the Lease shall be transferred to (a) Lender or its nominee or designee, (b) any assignee or transferee from Lender or its nominee or designee, or (c) any other person or entity as may become the owner of Landlord’s interest by purchase at foreclosure or by deed in lieu of foreclosure or otherwise (any such party described in clause (a), (b) or (c) above, the “Successor Landlord”), Tenant shall be bound to Successor Landlord under all of the terms, covenants and conditions of the Lease for the balance of the term thereof remaining and any extensions or renewals thereof which may be effected in accordance with any option therefor in the Lease, with the same force and effect as if Successor Landlord were the landlord under the Lease, provided that the provisions of the Mortgage shall govern with respect to the disposition of any casualty insurance proceeds or condemnation awards.”

The attornment clause assures that tenants accept the new building owner as the landlord following foreclosure or normal sale.  It ensures that tenants continue to pay rent to the new landlord for the remainder of the lease term.  Furthermore, the attornment clause forces tenants to observe all the terms of the lease.

A Note About Attornment

Attornment is an important part of the landlord-tenant relationship.  For example, suppose you rent the basement flat of a two-family house and the landlord occupies the remaining space.  A few months after you sign the lease, the landlord sells the property to a new owner/occupant.  If you signed an attornment agreement, then you agreed to accept the new owner as your new landlord. That means you will write rent checks to the new owner and generally respect the landlord’s authority.  However, if you refuse to grant attornment to the original landlord, she can evict you when selling the property. This illustrates why it’s important to understand the concept of attornment and why you must be willing to accept this lease clause.

Furthermore, you can read an archived example of a Master Lease SNDA agreement from the SEC. You can also check out an example of an attornment form from the Department of General Service.

How Non-Disturbs Help You

As the property owner, the non-disturbance clause helps you in the following ways:

  1. It facilitates the tenant’s signing of the SDNA.  Since the SDNA’s subordination clause helps owners get financing, owners want tenants to agree to the SDNA.  The only part of the SDNA that helps the tenant is the non-disturbance clause.  Therefore, including the clause makes it easier to persuade tenants to sign the SDNA.
  2. The non-disturbance clause gives tenants confidence in the reliability of the lease.  In turn, this makes it easier for tenants to justify spending additional monies on leasehold improvements.  Those improvements typically increase the value of the property, which in turn benefits the owner. 
  3. Lenders usually want lessees to continuing paying rent during a foreclosure proceeding.  After all, it is these rent payments that ultimately help to pay back the mortgage.  Since the non-disturbance clause helps ensure the continuation of rental income, lenders favor the clause.  And since you want to attract lenders, you should favor the clause as well.

State-Specific Info on Landlord-Tenant Law

Below you can find overviews of landlord-tenant law for these states: 

If your state is not listed above, you may use this state-by-state guide to landlord-tenant legislation.

Frequently Asked Questions: SNDA Agreements

Do SNDAs need to be recorded?

The SNDA is part of the lease or an addendum attached to the lease.  It therefore exists as part of the process of recording the lease.  Without a written SDNA, the provisions might prove to be unenforceable. 

What is a tenant estoppel in real estate?

A tenant estoppel is a certificate that tenants sign to stipulate certain facts are correct.  These facts include that a lease exists, that there are no defaults, and that the lease payments are current.  A tenant estoppel prevents other parties from misrepresenting the facts. 

What is a deed of attornment?

This is a deed entered into by the tenant, the new landlord and the old landlord confirming agreement to the attornment clause.  The term “deed of attornment” more commonly appears in foreign countries such as India.  We just refer to the attornment clause.

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