A Subordination, Non-Disturbance, and Attornment Agreement or SNDA is a crucial legal document that governs the relationship between a lender, tenant, and property owner in a commercial real estate transaction. While it may not be the most exciting part of the deal, it is essential to understand its significance and how it can affect all parties involved.
In a commercial real estate transaction, the borrower (tenant) obtains a loan from a lender to acquire or improve a property, and the owner enters into a lease agreement with the tenant. An SNDA is a tripartite agreement that addresses the priority of the interests of all parties in the event of a default or foreclosure.
The subordination clause in the SNDA defines the priority of the interests of the lender and the owner. Typically, the lender would require that their mortgage interest ranks higher than the owner`s interest in the property, giving the lender priority over the owner in the event of a default or foreclosure. As a result, the owner`s interest is subordinated to that of the lender.
The non-disturbance clause in the SNDA protects the tenant`s rights in the property if the lender forecloses on the property. It states that the lender recognizes the tenant`s lease and agrees not to disturb the tenant`s possession of the property during the lease term.
The attornment clause in the SNDA requires the tenant to acknowledge the lender as the new owner in the event of foreclosure. The tenant agrees to continue to pay rent to the lender as the new owner and recognizes the lender as the new landlord.
Why is an SNDA important?
An SNDA is important for all parties involved in a commercial real estate transaction. The lender needs to ensure that their mortgage is secured, and they have priority over the owner`s interest in the property. The tenant needs to protect their rights in the property if the lender forecloses on the property. The owner wants to safeguard their lease agreement with the tenant and ensure that the tenant continues to pay rent even if the property is foreclosed upon.
In conclusion, an SNDA is a critical legal document in a commercial real estate transaction that outlines the priority of interests between the lender, tenant, and owner. It is essential for all parties to understand its significance and how it affects them if a default or foreclosure occurs. Therefore, it is important to have an experienced attorney review and negotiate the SNDA to ensure that everyone`s interests are protected.