What is an SNDA in real estate? Does it help an investor?

In the world of commercial real estate, knowing what is SNDA is important. The Subordination, Non-Disturbance, and Attornment Agreement (SNDA) helps balance the interests of landlords, tenants, and lenders. Especially if something goes wrong like a landlord defaulting on a loan.

In other words, this legal document outlines the relationship between a tenant, landlord, and the landlord’s lender. And, details the hierarchy of interests and provides protections in case of foreclosure or other issues.

So, what is an SNDA in real estate and how important is it?

An SNDA consists of three key components: subordination, non-disturbance, and attornment. Subordination places the tenant’s lease below the lender’s mortgage. That is to say, the lender’s rights take priority if the landlord defaults. This is crucial for protecting the lender’s investment. Non-disturbance ensures tenants can stay in their leased space even if the lender forecloses, provided they adhere to the lease terms. This offers tenants security and stability. And, attornment requires existing tenants to recognize the lender or new owner as their landlord in the event of a foreclosure. This ensures the lease remains in effect and the property retains its rental income, which is beneficial for the lender.

Typically, the tenant, the landlord, and the landlord’s lender sign the SNDA. All parties must agree to the SNDA terms to ensure their respective interests are protected.

Keep in mind that an SNDA may not be legally required in all real estate transactions but is common in commercial real estate. It is particularly important in transactions where there is significant financing.

What does an SNDA do?

An SNDA serves three main purposes, based on its core components:

Subordination

This part of the SNDA states that the tenant’s lease takes a backseat to the lender’s mortgage. In other words, the lender’s claim on the real property is a priority over the tenant’s lease rights. The subordination clause is essential for lenders who are eager to close the loan. It ensures that their interest in the property takes precedence over any existing lease agreements.

Non-disturbance

The non-disturbance clause safeguards tenants from eviction if the landlord defaults and the lender forecloses on the property. As long as the tenant adheres to the lease terms, this clause guarantees that they can continue occupying the property without interruption. This provides stability and continuity for their rental business.

Attornment

The attornment provision obligates the tenant to acknowledge and accept a new landlord if the property’s ownership changes hands, usually due to foreclosure. This ensures that the lease remains intact and the tenant continues to pay rent, which benefits the new owner. It also clarifies the tenant’s obligations under the new ownership. Such a step prevents potential disputes about the lease’s validity.

Who benefits from an SNDA?

SNDA provides critical protections for lenders, tenants, and landlords. For lenders, SNDAs ensure their mortgage takes priority over tenant leases, allowing them to foreclose if necessary without lease complications. Tenants benefit from the non-disturbance clause. It ensures their lease won’t be terminated if the landlord defaults. For landlords, agreeing to subordination helps secure financing by giving lenders a priority claim, thus supporting property improvements and maintaining value by keeping tenant occupancy stable.

What should you consider when dealing with an SNDA?

When negotiating an SNDA, there are a few important things to think about. Tenants will want to make sure the non-disturbance clause is strong enough to protect them from any negative actions by the lender. Meanwhile, lenders might want the right to terminate the lease if the tenant defaults, even if the original lease didn’t include that. This is where a good commercial real estate attorney comes in handy. They can help make sure that the agreement covers everyone’s interests.

It’s also important to look at the existing lease alongside the SNDA. Things such as rent, the lease term, and tenant responsibilities might need to be adjusted to fit with the new agreement. For example, the SNDA might need to clarify how rent changes or lease renewals will work if there’s a new owner.

Can a tenant negotiate the terms of an SNDA?

Yes, tenants can negotiate the terms of an SNDA. It is advisable for tenants to review the agreement carefully and negotiate terms that adequately protect their interests, especially regarding the non-disturbance clause.

Last thoughts

An SNDA is a crucial loan document in commercial real estate. It provides a clear framework for protecting everyone’s interests. It outlines who has priority, ensures tenants aren’t disturbed, and sets the stage for how things should work if ownership changes. Whether you’re a landlord, tenant, or lender, understanding and negotiating an SNDA is crucial to ensuring your property rights and obligations are clear.

Written by Ramona Sinha. August 25, 2024

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.