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Miami FL Estate Planning & Elder Law Blog

Friday, November 15, 2019

What is an SNDA and Why is my Landlord's Lender asking me to Sign it?

As a condition of a mortgage loan, a lender may require that the borrower (or landlord) obtain a signed Subordination, Non-Disturbance and Attornment Agreement (SNDA) from the tenants. A SNDA is a tri-party agreement between the lender (the mortgage), the borrower who uses the proceeds to purchase the property (the landlord) and the tenant. 

A SNDA will reference the lease, lease parties and execution date.  The purpose of the Agreement is the provide that the lease (and any modifications to the lease) will be “subject to” and “subordinate” to the mortgage lien.  This is the “S” in SNDA.  In exchange for the tenant’s agreement to remain behind the lender’s rights to the property, the lender agrees to give tenant protections in the event of a foreclosure. 

A foreclosure of the property would occur if the borrower/landlord failed to pay its mortgage or breached the loan documents and lender could take possession of the property.   In this situation, the ender agrees to leave the tenants in possession and not disturb the tenancy, provided that they have not breached the lease.  The covenant of non–disturbance is the “ND” in the SNDA.  

The lender will step in the shoes of the landlord in the event of a foreclosure and agree not to evict the tenant because of the landlord’s default.  The lender then agrees to “attorn” to the tenant, the “A” in SNDA.  The lender essentially acts as the new landlord but will not want to agree to take on all agreements given to the tenant by the borrower/landlord.  In addition, the lender will likely not agree to honor any rights of the tenant to purchase the property, be liable for any acts or omission of the landlord before the lender took over, credit tenant for any prepaid rent paid the original landlord or return the security deposit (unless the prepaid rent and security deposit have been transferred in writing the lender.)

The tenant will be required to deliver notice to the lender of any default by the landlord under the lease. If the landlord does not cure the default in the cure period under the lease, the lender can step in and cure the default. The lender’s rationale for this is the lender wants to ensure the lease remains in effect, that the landlord continues to collect rent money and can use such funds to pay the mortgage.  Because the actions of each party affects the others, notices by one party of default under the lease and loan documents should be given to the other two parties.  

The agreement should be signed by an authorized signatory and notarized by a notary public from said state to prevent forgery. Additionally, a SNDA is recorded in the county where the property is located to serve as publicly available notice of the agreement.  A commercial lease will often contain the bank’s standard form of SNDA as an exhibit to the lease to be negotiated with the lease.  A sophisticated tenant should request an SNDA for existing and future lenders.  

It should be noted that a similar agreement in a ground lease scenario is called a Non Disturbance Agreement (NDA) and there is no subordination in that context.

An SNDA is a commonly used tool to protect and lender and a tenant when the landlord borrows funds to purchase the leased building. 


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