| Detail | Explanation |
|---|---|
| Parties | Tenant, landlord, and lender |
| Subordination | The lease ranks behind the mortgage |
| Non-disturbance | The lender or buyer at foreclosure honors the lease if the tenant is not in default |
| Attornment | The tenant accepts the new owner as landlord |
| Often paired with | A tenant estoppel certificate |
What each part of an SNDA does
Subordination sets priority. In many states, a lease signed before a mortgage is recorded can have priority over that mortgage, and a foreclosure may not end it. Subordination puts the mortgage first, which gives the lender control over the property's legal position.
Non-disturbance is the tenant's protection. Without it, a subordinate lease could be cut off in a foreclosure. The lender promises that, as long as the tenant is performing, the lease continues.
Attornment is the tenant's promise to accept the lender or foreclosure buyer as landlord. That promise is what keeps the rent flowing to the new owner. The effect of priority and foreclosure on leases depends on state law, so the lender's counsel reviews the form for the property's state.
Why lenders care about SNDAs
A commercial loan is repaid from rent. If the lender forecloses, it wants creditworthy tenants to stay under their existing leases. It may also want the ability to remove a tenant whose below-market lease hurts value. The SNDA gives the lender that clarity in advance.
Lenders usually require SNDAs from anchor and major tenants, and from any tenant whose lease is large enough to affect debt service coverage. On a single-tenant property, the SNDA is usually a closing condition. Many leases already require the tenant to sign an SNDA on the lender's reasonable form.
Terms that get negotiated
- Offsets and credits. Lenders limit the tenant's right to deduct past landlord defaults from rent owed to a new owner
- Prepaid rent. Lenders usually refuse to be bound by rent paid more than 1 month in advance
- Lease amendments. Lenders may require consent for amendments or terminations signed after the loan closes
- Security deposits. The new owner is often responsible only for deposits it actually receives
- Purchase options and rights of first refusal. Lenders want these subordinate or unenforceable against a foreclosure sale
- Notice and cure. Tenants want the lender to receive notice and a chance to cure landlord defaults before termination
How SNDAs affect closing timelines
Large tenants often insist on their own SNDA form and route every request through counsel. Agreeing on a form between the tenant's attorney and the lender's attorney can take longer than any other closing item. Start early, send the lender's form with the estoppel certificate request, and flag any lease that already specifies an SNDA form.
Ground leases raise a related issue. A leasehold lender needs protections from the ground lessor as well, which are handled through the ground lease and a lessor estoppel. See ground lease financing for that structure.
Capital Partners tracks tenant documents on permanent loans and net lease acquisitions from the start, because a missing SNDA can hold up a funded loan. When the leases are ready, submit the deal for review.
Common questions
Does a tenant have to sign an SNDA?
It depends on the lease. Many commercial leases require the tenant to sign an SNDA on the lender's reasonable form, often conditioned on the lender granting non-disturbance.
Why would a tenant want an SNDA?
Non-disturbance protects the tenant's lease if the landlord's lender forecloses. Tenants that invest heavily in their space usually want that protection in writing.
What is the difference between subordination and non-disturbance?
Subordination puts the lease behind the mortgage. Non-disturbance is the lender's promise not to end a performing tenant's lease after foreclosure, which balances the risk subordination creates for the tenant.
Is an SNDA recorded?
SNDAs are often recorded, especially for major tenants, so the priority arrangement is on the public record. The loan documents or local practice usually decide whether recording is required.
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