Maybe it’s an exhibit at the back of the lease, or maybe it’s something you received in the mail that you are told to sign and return right away. Either way, your commercial real estate attorney should review it. That signed document could drastically change your commercial lease terms.

An estoppel is basically a short lease summary. It’s a legal document that summarizes key points the lender or purchaser of a property wants to confirm. By signing it, you’ve agreed to the terms – even if they don’t match the lease terms! 

The SNDA is the subordination, non-disturbance and attornment agreement. The purchaser wants to know that the tenant will treat the new owner like the previous one, that he/she will attorn and subordinate his/her rights. The landlord can sell the property and the tenant doesn’t get any say in the matter.

Subordination

The rights of the tenant greatly depend upon whether he/she has priority over the landlord’s mortgage, which is held by the lender. In many leases, the tenant has agreed to a provision where it subordinates its rights to any present or future mortgage the landlord places on the property. This automatic subordination clause, without corresponding non-disturbance language, could severely undermine the tenant’s rights if landlord defaults on its mortgage loan. 

Non-disturbance

When faced with either subordination requirements in the lease or any landlord requests, a tenant should request a non-disturbance agreement. 

It is prudent for the tenant to obtain a non-disturbance agreement from any existing mortgage lender when the lease is executed. The tenant should avoid agreeing to automatic subordination clauses that could undercut his/her priority, or negotiate such provisions to provide protections if automatic subordination is triggered. 

Attornment

Upon a loan default and enforcement by the lender, which usually involves replacing the landlord, the tenant agree to treat the new landlord just like the previous one (including rent payment obligations). 

In a soft leasing market, the new landlord wants to keep the current tenant. The lender should ask the tenant to attorn to the new landlord under these circumstances. Attornment would consequently protect the lender from the risk of the tenant vacating when the tenant has been paying above-market rent for the leased property. A well-drafted attornment clause will include an obligation of the tenant to attorn to any successor in title including any purchaser the lender might sell the property to following or as part of the exercise of the lender’s loan enforcement remedies.

There are two things that will be an advantage to any tenant – especially a tenant with a long-term lease or which has made a substantial investment in its tenant improvements (i.e. expensive buildout or ground lease with construction of the tenant’s own building).  

#1: To have the right to secure a SNDA from all existing mortgagees of the property 

#2: A commitment by the landlord to obtain such an agreement from future lenders as a condition to granting subordination to future mortgagees. 

How do you know if this language is in your lease?  Or should you sign that document that came in the mail from the landlord?  A commercial real estate attorney can help you understand and protect your rights and obligations under these documents.

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.

About Jenna Zebrowski

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