SNDA

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SNDA

A Brief Introduction About SNDA

What is an SNDA? Subordination non disturbance and attornment agreement is drawn between landlords and their lenders. The agreement lays down the rights of tenants, the landlord, and the lender in the context of the property.

The agreement consists of three key clauses:

  • The subordination clause,
  • The non disturbance clause, and
  • The attornment clause.

If a property is sold, the leaseholder will enjoy the same rights and have privity with the new landlord. However, if the landlord defaults on the repayment of the loan and the property are forfeited to the lender, your right to use the building ceases to exist. It protects tenants against this by having the lender agree that the tenants’ lease will be honored in case the building is taken over. It is also called “non-disturb” and subordination agreement form.

Who Takes the SNDA? – People Involved

You would need to enter into a subordination, non-disturbance and attornment agreement- SNDA if:

  • You are the tenant of a commercial building whose landlord has taken a loan from the lender and looking to protect yourself using a non-disturbance clause.
  • You are a lender looking to use the subordination clause to ensure that the terms of the mortgage will take precedence over those of the lease, irrespective of first in time is first in right doctrine.
  • You are a landlord who has mortgaged his property and leased it out.

The contracting parties here are the lender, tenant, and landlord.

Purpose of the SNDA – Why Do You Need It?

The purpose of the agreement is to:

  1. Lay down the rights of the tenant, landlord, and lender.
  2. Establish the relationship between the contracting parties.
  3. Make sure the terms of the mortgage prevail over the terms of the lease, that is, the subordination of the lease.
  4. Ensure that the rights of the tenant over the use of the land does not cease to exist after a take over by the lender in case of a default.

What is a Subordination Agreement?

subordination non disturbance and attornment agreement makes sure that the mortgage is higher in priority than the lease, which means that it would need to be settled first in the case of foreclosure or bankruptcy. When a property is taken over by the mortgage lender, either due to foreclosure or bankruptcy, any existing leases can be terminated by the mortgage lender. This is usually not a cause for concern as mortgage lenders want to retain tenants, but for the legal protection of the tenants, the non-disturbance clause should be included. This clause has the mortgage lender agree that they will honor the lease even after foreclosure.

The final clause is the attornment clause, which is used to signify that the tenant will accept any new owners of the property as the landlord. SNDAs are mutually beneficial for the tenant and the lender because both of their interests are being met, that is, the mortgage is being made superior to the lease, and the lender assures the tenant that he will honor the lease in case of foreclosure.

Contents of the SNDA – Inclusions

The following terms must be included in subordination non disturbance and attornment agreement:

  1. Effective Date: It mentions the date on which the agreement does become effective. It is a standard but critical clause and should be included.
  2. Parties to Contract: This clause ideally identifies the parties to the contract – the tenant, landlord, and lender. It must mention their names and addresses.
  3. Subordination: This clause is one of the three key clauses in the agreement. It provides that the terms of the mortgage will prevail over those of any other agreements, such as leases. While it often does not usually affect the leaseholder, the subordination clause puts the mortgage higher up in priority over the lease. This ensures that the mortgage is paid first in case of foreclosure or bankruptcy. While it does not usually make any practical difference to the tenant, it is important to know that at least technically, this clause allows the lease to be terminated in case of a foreclosure. This clause will define subordination in the context of the agreement.
  4. Non-disturbance: This clause makes sure that the leaseholder’s right to use the land does not cease to exist if it is taken over by the lender. As per the subordination clause, the mortgage lender could terminate the lease in the event of a foreclosure. The non-disturbance clause seeks to counteract the effects on the tenant by having the lender agree that it will honor the lease in case of foreclosure or bankruptcy.
  5. Attornment: By means of this clause, the tenant acknowledges any new owner of the property as his landlord, regardless of how the property is acquired.
  6. Termination: Termination clause mentions those the circumstances under which the agreement can be terminated.
  7. Governing Jurisdiction: This clause mentions the jurisdiction that governs any disputes that may arise out of the agreement.

How to Draft the SNDA?

The procedure to draft a subordination, non-disturbance, and attornment agreement – SNDA :

  1. Mention agre, that is, the date on which the agreement will come into effect.
  2. Identifying the contracting parties with their full names and addresses.
  3. Establish the relationship between the parties.
  4. Include the subordination clause by which the tenant agrees that his leasehold is subordinate to the terms of the mortgage.
  5. Include the non-disturbance clause by which the lender promises to honor the lease of the tenant post-foreclosure.
  6. Include the attornment clause by which the tenant recognizes any new owner of the property as the landlord, regardless of whether it was acquired by normal sale or foreclosure.
  7. Provisions for the closure of the agreement should be states such that the conditions under which the agreement may require to be terminated are clearly pronounced.
  8. The agreement needs to state the name of the jurisdiction that will govern the document. It should also mention any disputes that arise from it.
  9. Include any other terms that may be required for compliance with local, state, and federal laws.
  10. Have the parties to sign it to signify their acceptance of terms.

Negotiation Strategy

The terms of the SNDA agreement must be negotiated in a way that is mutually beneficial and amenable to both parties in order to avoid dissatisfaction that could possibly lead to disputes. Neither should be disadvantaged or bear the expense of the other. In some instances, lenders might exercise their position of dominance to include terms that are advantageous to them but are a disadvantage to the tenants.

Benefits & Drawbacks of the SNDA

The benefits of having an SNDA agreement:

  1. Gives a clear view of the terms and conditions involved, avoiding ambiguity and miscommunication.
  2. Safeguards the interests of both parties.
  3. Ensures that the lender will honor the lease in case of foreclosure.
  4. Ensures that the tenant recognizes any new owners as the landlord.
  5. Ensures that the terms of a mortgage take precedence over an existing lease.

The drawbacks of having an SNDA agreement:

  1. The legal costs must be borne by one or both of the parties.
  2. Negotiations can take time.
  3. Lenders might exercise their position of dominance to include terms that are disproportionately advantageous to themselves.

What Happens in Case of Violation?

The mortgage lender is liable to the tenants if he does not honor the lease after foreclosure after having agreed to ‘non-disturbance.’ Similarly, the tenant would be liable to the lenders if they refuse to accept the mortgage lenders as the new owners after consenting to the subordination and attornment clauses of the agreement. In case the conditions of the contract are breached by either party, the aggrieved party can resort to the legal resolution by arbitration or conventional dispute settlement methods.

Depending on how the agreement suggests the disputes to be handled, the parties might be required to amicably settle the conflict internally or by alternate dispute resolution methods before going to court(1).

A “non-disturb” agreement is an important part of any commercial lease. It protects the interests of the tenants by ensuring that the lender honors the lease post-foreclosure. Without an SNDA agreement, the lender would be under no obligation to honor the lease. The three primary clauses of the agreement are the subordination clause, non disturbance clause, and attornment clause. All of these clauses have specific purposes, and they are supplementary to each other and ensures that the rights of the lender and the tenants are protected.

The subordination clause in the subordination of mortgage ensures that the terms of the mortgage take precedence over those of the lease, regardless of which was entered into first. The non disturbance clause in the tenant subordination agreement is used by the lender to promise the tenant that the lease will be honored in the event of a foreclosure. Lastly, the tenant agrees to accept any new owner of the property as the new landlord, by means of the attornment clause.