SNDA Can Protect Tenants Against Commercial Foreclosures

February 27, 2009
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The rising number of commercial foreclosures in New Jersey is raising concerns of the state’s office, retail and industrial tenants, who could be at greater risk of seeing their buildings fall into disrepair of having their current leases terminated if property owners default on their mortgages.

Legal professionals, many of which have been handling one or two new foreclosures a week across the state, say that the number of foreclosures will continue to increase for the foreseeable future. The percentage of commercial foreclosures compared to the total of commercial real estate mortgages in the state is still in the single digits, but is rising at a steady, but vigorous pace. The spike is causing a great deal of concern among tenants.

At the same time, there are ways for tenants to protect themselves in distressed situations.

In many cases, a foreclosure isn’t a cause for alarm for tenants because most commercial mortgages include an SDNA, or subordination, nondisturbance and attornment agreement, which protects a tenant’s lease if the property is taken over by the lender or a new owner. Also, many commercial leases have a nondisturbance clause, which allows a tenant to stay in a building after an owner loses the property. If a commercial lease doesn’t have that language included, the new property owner could redraft a lease that’s less favorable to the tenant, or evict the tenant.

In the event of an eviction, a tenant usually has about 60 days’ notice, although it could appeal to the courts for more time. But given the economic slump, a tenant abiding by its lease terms is unlikely to get kicked out of a building if a new owner takes possession—especially in today’s market, where tenants are hard to come by.

Source: njbiz.com