By JinAh Lee , J.D. · UCLA School of Law
Updated by Amy Loftsgordon , Attorney · University of Denver Sturm College of Law
Commercial leases often contain what is called a subordination, non-disturbance, and attornment agreement (SNDA). SNDAs outline certain rights of the tenant, the landlord, and related third parties, like the landlord's lender or a property purchaser.
The three parts of an SNDA are the subordination clause, the non-disturbance clause, and the attornment clause. Including an SNDA in a commercial lease benefits both tenants and landlords.
When tenants sign off on a subordination clause in an SNDA, they agree to allow their interest in the property (also known as a "leasehold") to become junior to the interest of a third-party lender.
Commercial landlords often require subordination clauses in their leases to preserve the possibility of using the building as loan collateral. Most lenders won't allow a commercial property to serve as security for a loan unless their mortgage interest is superior to any tenants' leasehold interests. So, in the event of commercial foreclosure, the lender can terminate the tenant's lease.
Why would a commercial tenant agree to give a lender this right? Commercial tenants often don't have the negotiating power to refuse to sign a subordination clause. To protect its leasehold interest, the tenant should do its best to ensure the SNDA includes a non-disturbance clause, described below.
In exchange for agreeing to subordinate their interest to a lender's interest and recognize any new owner as the landlord (see "The Attornment Clause" below), tenants should ensure that the SNDA has a strong non-disturbance clause. A non-disturbance agreement gives tenants the right to continue occupying the leased premises if they're not in default—even after the property is sold or foreclosed.
The non-disturbance clause assures tenants that their rights to the premises will be preserved even if the landlord doesn't fulfill its duty to pay the lender. Being confident they can remain in a location for the full lease term is essential to business tenants because changing locations can potentially lead to unexpected expenses, inconvenience, and loss of customers.
Whether a landlord will agree to include a non-disturbance clause in the SNDA depends on the tenants' negotiating power.
An "attornment" is the act by which tenants acknowledge a new property owner as their new landlord. The attornment clause in an SNDA obligates the tenants to accept a new owner as their landlord, regardless of whether the new owner acquires the property in a typical sale or following a foreclosure.
The clause provides that, in the event that ownership is transferred, the new owner essentially replaces the former owner in the lease, assuming all of the former owner's rights and responsibilities. Perhaps most importantly, the clause requires the tenants to continue to pay rent regardless of who owns the property.
Whether you are a commercial landlord or tenant, it's important to remember that many legal intricacies are involved with commercial leasing. It might be beneficial to employ the services of a qualified attorney to help you prepare or agree to an SNDA.