SNDA Agreement in Commercial Real Estate

A subordination, non-disturbance, and attornment (SNDA) agreement is a three-part contract that settles the priority and survival rights of a tenant and a lender if a property is foreclosed. Subordination means the tenant’s lease is junior to the lender’s mortgage; non-disturbance protects the tenant’s right to occupy the space; attornment means the tenant agrees to recognize the lender as the new landlord after foreclosure.

Why SNDA Agreements Exist

In commercial real estate, a mortgage lender’s claim is senior to a lease unless the lease was recorded before the mortgage. When a loan goes into default and the lender forecloses, the new owner (the lender or a buyer at the foreclosure sale) typically has the power to evict all junior tenants and take over the property clean.

This creates a dilemma. A tenant with a long-term, profitable lease might suddenly lose occupancy because of the landlord’s financial trouble. The lender, meanwhile, is reluctant to foreclose on a property with a tenant it can evict, because an empty building is worth less and harder to sell.

The SNDA agreement solves this: it lets the tenant keep the lease even if the landlord defaults, in exchange for acknowledging the lender’s priority claim and agreeing to perform on a modified lease with the lender as the new landlord.

The Three Components

Subordination. The tenant agrees that its lease is subordinate to the lender’s mortgage. This means if the property goes into foreclosure, the lender’s claim to the property is satisfied first; the tenant’s occupancy rights are junior. Without subordination, a lender would be reluctant to make the loan, because a long-term tenant with superior rights could block or complicate the lender’s ability to own or sell the property free and clear.

By agreeing to subordination, the tenant essentially says: “Your mortgage lender, if you default, can foreclose. I will not fight that on the basis of my lease’s seniority.” This is usually a necessary condition for the lender to agree to the non-disturbance clause.

Non-disturbance. The lender covenants that as long as the tenant is not in material default of the lease, the foreclosure or change of ownership will not result in the tenant’s eviction or any material modification of the lease terms. The tenant gets to keep its space, its rental rate, and its lease duration—even after the lender forecloses and takes over the property.

This is the tenant’s insurance policy. Without the non-disturbance clause, a sophisticated tenant would never subordinate, because it would risk immediate eviction by a new owner who has no interest in honoring the old lease.

Attornment. The tenant agrees to recognize the foreclosed-in lender (or the lender’s assignee) as the new landlord and to perform all obligations under the lease to that party, using the same terms as before. “Attornment” is an old legal term meaning the tenant “turns to” (attorn to) a new landlord.

In practice, attornment removes legal ambiguity. Without it, a tenant might argue that the lease was with the old landlord and is void if that landlord loses the property. Attornment prevents that argument; the tenant is bound to the lease regardless of the change of ownership.

The Forecast Scenario

Suppose a commercial tenant has signed a 10-year lease at $50 per square foot in a 10,000-square-foot office building. Two years in, the landlord defaults on its mortgage. The lender forecloses and becomes the new owner.

Without SNDA: The lender can evict the tenant and lease the space at the current market rate, perhaps $75 per square foot. The tenant must move, losing the benefit of its favorable long-term contract. The lender prefers to foreclose free of the tenant’s claim.

With SNDA: The tenant stays. The lender forecloses, takes ownership, and is bound by the non-disturbance clause to honor the original lease at $50 per square foot for the remaining 8 years. The tenant keeps its deal; the lender benefits from a creditworthy occupant and predictable cash flow.

Negotiation Points

Tenant protections in the SNDA:

• The non-disturbance clause should apply even if the original lease is not in the SNDA document; it should protect the lease as signed.
• The SNDA should state that the lender will not impose new terms on the tenant as a condition of non-disturbance.
• The tenant should confirm that renewal, expansion, or other lease options are preserved.

Lender protections in the SNDA:

• The lender can require the tenant to be current on rent and in material compliance; if the tenant is in default, the lender is not obliged to grant non-disturbance.
• The lender may require the tenant to subordinate prepaid rent and security deposits to the mortgage (so the lender can apply them to the debt).
• Some SNDAs allow the lender to consent to lease amendments; others limit that power.

When the Tenant is Not in Compliance

A critical caveat: non-disturbance is not automatic. It applies only if the tenant is in material compliance with the lease at the time of foreclosure. If the tenant is behind on rent, in breach of a use provision, or otherwise in default, the lender may lose the obligation to grant non-disturbance and may evict the tenant as part of its takeover.

This is why a tenant’s creditworthiness and lease performance matter to the lender negotiating an SNDA.

Variations and Modern Practice

Lender consent clauses. Some SNDAs give the lender the right to consent to future lease amendments. A tenant may negotiate a carve-out for minor amendments (like extension of renewal options) that do not require lender consent.

Estoppel certificates. An SNDA often includes an estoppel certificate in which the tenant certifies the lease is in full force, rent is current, and there are no uncured defaults. This protects the lender from claims of hidden breach.

Subordination on terms. Sophisticated tenants sometimes negotiate a “subordination on terms” clause: subordination only if the lender agrees to offer non-disturbance in writing before the tenant is bound. This prevents a lender from subordinating the tenant’s lease and then refusing non-disturbance at foreclosure.

In modern commercial real estate, most lenders and landlords use SNDA agreements for any tenant with a term of three years or more, or for any tenant in a credit-sensitive space (e.g., a retail anchor tenant or professional services firm). The SNDA reduces friction and allows the commercial real estate market to function efficiently even when properties are leveraged.

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