Get Nondisturbance Agreement to Protect Your Interests
You may not realize that a commercial property owner’s decision to refinance, purchase new properties, or tap existing properties’ equity for operating capital could affect you, too. But if the owner of the property where you lease space is using its building or center as collateral for a loan, the lender will be concerned with more than just the property value—it will also assess the quality of the owner’s lease agreements with its tenants. That's because, ideally, lenders look for leases that ensure consistent cash flow and protect them from liability if they have to foreclose on the property and step in as the new owner. A lender typically will ask a building’s owner to get its tenants to sign the following key documents:
A tenant estoppel certificate. This confirms that there are no uncured defaults under the lease.
Subordination agreement. This document, which can be offered by either the owner or lender, requires you to agree that the interests of the lender take priority over your lease (that is, that in the event of a foreclosure, your interest, at the option of the lender will cease). In addition, the document will provide that, even if the owner defaults on its loan and the lender forecloses on the property, the lender would not be responsible for any of the original owner’s lease defaults once it takes possession of the property. Moreover, in the event of a conflict between the provisions of the lease and those of the mortgage and other instruments securing the loan, the provisions of the security documents would trump your lease provisions.
Attornment agreement. The attornment agreement requires you to recognize any new owner that may take over as a result of default and foreclosure.
Get Nondisturbance Agreement in Exchange
You should agree to sign the subordination and attornment agreements only in exchange for a nondisturbance agreement—a written promise guaranteeing that if a new owner steps in upon foreclosure of the property, your lease rights will not be affected, as long as you are not in default of the lease.
These documents work together. The tenant estoppel certificate confirms the facts of the lease (that is, that there are no defaults), and the subordination, attornment, and nondisturbance agreements (SNDA) confirm that you acknowledge: (1) that your lease is subordinate to any future mortgages; (2) that as long as you are not in default of the lease, which default continues beyond notice and the expiration of applicable cure periods, you will not be affected by the owner’s loan default and subsequent foreclosure; and (3) if the lender or a new owner takes over, you will acknowledge the new owner as the owner of the building or center.
For more tips on how to make a tenant estoppel certificate and SNDA work for you, see “Protect Your Interests When Owner Refinances Property," available to subscribers here.