Playbook: SNDA Agreements Made Simple

Why SNDAs Matter

Commercial leases are often signed without much thought about the landlord’s lender. Yet in many cases, the landlord has a mortgage on the property. If that landlord defaults, the bank or lender can foreclose, and tenants can find themselves caught in the middle.

This is where a Subordination, Non-Disturbance, and Attornment Agreement (SNDA) comes in. It’s a legal document, usually signed by the tenant, landlord, and landlord’s lender, that defines what happens to the tenant’s lease if the landlord defaults on their loan.

For small businesses and nonprofits, understanding SNDAs is pivotal. Without one, your lease could be wiped out in foreclosure, leaving you without protection for your location, your build-out investment, or even your ability to operate.

This playbook walks through what an SNDA is, why it matters, and how to approach negotiating one.

Step 1: Understand the Three Parts of an SNDA

An SNDA covers three related concepts:

1. Subordination
   • Your lease agrees to be “subordinate” to the landlord’s mortgage.
   • This means the lender’s rights come before the tenant’s rights if there’s a foreclosure.
   • Without subordination, your lease could disrupt the lender’s collateral.
2. Non-Disturbance
   • In exchange for subordination, the lender promises that if they foreclose, your lease won’t be terminated.
   • As long as you’re not in default under your lease, you get to stay.
   • This is the protection tenants really need.
3. Attornment
   • You agree to “attorn” (recognize) the lender or a foreclosure buyer as your new landlord.
   • Practically, this means rent checks keep flowing (to a different landlord) and business continues under the same lease.

Think of it as a three-part trade: you give up priority, you gain protection, and you agree to recognize a new landlord if needed.

Step 2: Why Tenants Need an SNDA

An SNDA protects you from risks you don’t control:

• Lease Wipeout Risk: Without non-disturbance, a foreclosure can erase your lease entirely.
• Business Continuity: Keeps your store, office, or facility open even if ownership changes.
• Protection for Improvements: Safeguards the money you’ve put into tenant build-outs or equipment.
• Predictable Operations: Prevents surprise evictions or renegotiations at the worst possible time.

For tenants investing heavily in location, branding, or long-term operations, an SNDA is non-negotiable.

Step 3: When to Ask for an SNDA

• Before Signing the Lease
  Always ask about the landlord’s mortgage and whether their lender requires an SNDA. Get it negotiated upfront, not as an afterthought.
• If the Landlord Refinances
  A new lender may ask for subordination. Make sure you negotiate non-disturbance rights in return.
• During Renewal or Expansion
  If you extend or amend your lease, revisit SNDA protections.

Rule of Thumb: If the property is financed, ask for an SNDA. If the property is owned free and clear, confirm in writing that there’s no current mortgage.

Step 4: Key Negotiation Points for Tenants

When reviewing or negotiating an SNDA, focus on these areas:

1. Mutuality
   • If you’re asked to subordinate, insist on reciprocal non-disturbance rights.
2. Scope of Non-Disturbance
   • Ensure it protects you for the entire lease term, including renewals.
   • Clarify that rent, use, and other key terms cannot be unilaterally changed.
3. Cure Rights
   • Try to include the right to “cure” (fix) certain landlord defaults that could trigger foreclosure, like unpaid property taxes, if practical.
4. Notice of Default
   • Negotiate for notice from the lender before they foreclose. This gives you time to prepare.
5. Successor Liability
   • The new landlord (lender or foreclosure buyer) should assume all obligations under the lease, not cherry-pick.

Step 5: Practical Tenant Strategies

• Hire Counsel: SNDAs are lender-drafted and full of legal nuance. A tenant-side attorney can spot hidden traps.
• Tie It to Your LOI: Raise SNDA protection in your letter of intent so it’s on the table early.
• Ask for Transparency: Request confirmation of the landlord’s mortgage status before you sign.
• Leverage Build-Out Investment: If you’re spending significant money on improvements, use this as leverage to secure stronger non-disturbance rights.

Case Example: The Café That Almost Lost Its Lease

A local coffee shop spent $150,000 on a build-out in a neighborhood retail center. Six months later, the landlord defaulted on the mortgage. Because the tenant had no SNDA, the lender foreclosed and terminated all junior leases. The café had to vacate with just 30 days’ notice and lost its entire investment.

Had they negotiated a proper SNDA, the lender would have been obligated to honor their lease and keep them in place.

Conclusion: Don’t Sign Without Protection

An SNDA may sound technical, but for tenants, it’s a lifeline. It ensures your business isn’t collateral damage in your landlord’s financial troubles.

Key takeaways:

• Always ask about the landlord’s mortgage.
• Never agree to subordination without non-disturbance.
• Negotiate terms that protect your entire lease and improvements.

With an SNDA in place, you gain clarity and stability, two things every tenant deserves.