A Subordination, Non-Disturbance, and Attornment (SNDA) agreement is a tri-party contract between a commercial mortgage lender, a commercial tenant, and the property owner. SNDAs establish the legal relationship between lender and tenant if the property is foreclosed.
Key Financing Parameters & Standards
Institutional Market Reference
Subordination ClauseTenant agrees lease is junior and subordinate to the lender’s recorded deed of trust
Non-Disturbance ClauseLender agrees not to terminate or disturb tenant’s lease upon foreclosure if tenant is not in default
Attornment ClauseTenant agrees to recognize the lender or foreclosure buyer as its new direct landlord
Lender Liability LimitationForeclosing lender is not liable for prior landlord defaults, prepaid rents (>1 mo), or construction buildout
Lender Notice & Cure RightsTenant must give lender written notice and 30–60 days to cure landlord lease defaults
Mandatory Execution ThresholdMajor tenants (top 3–5 tenants or >10%–20% GLA) must execute SNDA as a condition to loan funding
* Lender closing counsel will not release loan wires until all required major tenant executed SNDAs are verified in escrow.
The Three Pillars of an Institutional SNDA Agreement
Subordination: Historically, if a mortgage was recorded prior to a lease, foreclosure wiped out the junior lease. Conversely, if a lease was recorded before the mortgage, the lease remained senior, preventing the lender from foreclosing clean title. Subordination contractually positions the mortgage senior to all tenant leases.
Non-Disturbance: Major tenants will not agree to subordinate their lease without non-disturbance protection. The lender agrees that so long as the tenant pays rent and performs its covenants, the lender will not name the tenant in foreclosure or disturb its occupancy.
Attornment: The tenant covenants that upon foreclosure or deed-in-lieu, the tenant automatically attorns to the lender or third-party buyer as its new landlord under original lease terms.
Key Battlegrounds in SNDA Negotiations
Institutional tenants and commercial lenders frequently negotiate four critical provisions:
1. Prior Landlord Defaults: Lenders refuse liability for pre-existing defaults by the borrower (e.g., unpaid tenant improvement allowances or delayed repair work). Tenants seek limited offset rights against future rent.
2. Prepaid Rent and Security Deposits: Lenders refuse to honor rent prepaid more than one month in advance or un-transferred security deposits unless physically received in escrow.
3. Lease Amendments: Lenders mandate that no lease termination, rent reduction, or term surrender is binding on the lender without prior written lender consent.
4. Casualty and Condemnation Proceeds: Lenders require insurance proceeds to pay down debt unless the lease explicitly mandates tenant reconstruction.
Closing Timeline and SNDA Escrow Administration
SNDAs must be negotiated and executed during loan underwriting. Corporate tenants often take 3 to 6 weeks to route SNDA agreements through corporate legal counsel. Missing SNDAs represent a primary cause of commercial loan closing delays.
Frequently Answered Questions
Common Questions About SNDA Negotiations: Subordination, Non-Disturbance & Attornment
Direct, transparent answers regarding underwriting standards, documentation, and process.
SNDA Fundamentals
What is an SNDA agreement in commercial real estate lending?
Direct Answer
An SNDA (Subordination, Non-Disturbance, and Attornment) agreement is a tri-party contract between a lender, tenant, and landlord protecting the tenant from lease termination in foreclosure while securing the lender’s mortgage priority.
It ensures the lender can foreclose clean title while guaranteeing the performing tenant retains undisturbed occupancy.
Non-Disturbance
Why is non-disturbance critical for commercial tenants?
Direct Answer
Without a non-disturbance clause, a foreclosing senior lender could legally terminate a below-market or inconvenient lease, wiping out the tenant’s capital investments and operational continuity.
Non-disturbance guarantees that performing tenants remain fully protected under their existing lease terms.
Lender Protection
Is a foreclosing lender liable for the previous landlord’s unpaid tenant improvements?
Direct Answer
Standard SNDAs explicitly state that a foreclosing lender is not liable for prior landlord defaults or unpaid tenant improvement allowances unless the lender specifically agrees to assume them or funds an escrow.
Lenders protect themselves from inheriting unknown historical liabilities from distressed borrowers.
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