Some Whys and Wherefores About SNDAs – Part 1

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I thought I understood a few things about Subordination, Non-disturbance, and Attornment Agreements (SNDAs) and could offer some answers until another attorney refused to allow a fully executed SNDA to be recorded because “it would encumber his client’s property.” I was and remain stumped. If anyone can figure out why he so insisted, please let this Ruminator know. I couldn’t figure out how this moderately experienced attorney in a firm with a decent size real estate practice would believe such a thing, let alone could I figure out how to respond. The lender freely granted an otherwise acceptable SNDA, fully expecting that it would be recorded. Send your answers or comments to

Now, for what I think I have figured out.

First, most lenders will freely grant some form of SNDA, though their attorneys and most (CMBS) servicers seem far more reticent to do so. This leads to point number one (and this works), landlords should negotiate into their loan commitments a provision wherein the lender agrees to grant SNDAs, if not under all circumstances, then at least to tenants with approved leases covering more than, say, 5,000 square feet of floor area. Then, the landlord’s attorney and the lender’s attorney won’t do the Dance of the Seven Veils in the House of the Seven Gables when the lender’s attorney refuses to include the very same obligation in the loan documents. Yes, sometimes lender’s attorneys are absolutely unwilling to give what their lender clients have no problem giving. And, with such a promise to give an SNDA built right into the loan documents, servicers (and the lender’s loan administration departments) fold their tents and cooperate. That will cut down on how much time and money it takes to get a lease done.

Second, in almost (note, the caveat “almost”) all situations where a lender takes over a property by foreclosure, a tenant will be just as undisturbed in its tenancy whether it has an SNDA or not, so long as it is paying anything approaching marketplace rent and has generally behaved itself in the past. Certainly, a handful of tenants find themselves “disturbed,” (read that: “thrown out”), but only when there is a good reason for a foreclosing lender or the buyer at a foreclosure sale to want to get rid of a good, rent-paying tenant. Even if all of that is true, no tenant’s attorney could feel safe in forgetting to ask for an SNDA or in easily acceding to a landlord’s refusal to obtain one for a client. On the other hand, actual tenants may find that, as a business matter, the transaction costs to fight for an SNDA may not be worth the effort. I know of at least one major tenant with thousands of 1,500 square foot spaces who has made the decision to get one if it can, even on the lender’s standard form, but if that’s not going to happen, then to “let it go.” And, this tenant’s fit-up costs are relatively high – no pipe rack store here. Its policy is based on comparing the transaction costs to get SNDAs against its experience of having lost only one store in a foreclosure situation. Don’t ask for the tenant’s identity. Though it isn’t a client, I’m not passing along its secret.

That having been said, and given that the prevailing wisdom is that a tenant NEEDS an SNDA, here are some general thoughts. In a few weeks, or maybe next time, Ruminations will drill down to specific SNDA issues, but for now – we offer only more general thoughts. Sorry, you’ll have to wait for the nuts and bolts. Don’t let that stop you from pitching in with your own comments. That’s how conversations work. And, the goal of Ruminations is to generate conversations.

First, the “S” in “SNDA” means “subordination.” In the context of an SNDA, that means the mortgage, in some or all respects, will be more important, i.e., will have higher priority, than the lease. That will be the case if the mortgage was already in place when the lease was executed. That would also be the case if, as is nearly universally true, the lease says it will be subordinate to all mortgages, even later recorded ones. [Now, the astute observer will note that this writer is not sitting in a jurisdiction where deeds of trust are used, so he says “mortgages” to cover both.] Lenders are leery to lend if leases don’t say the lease will be subordinate to all mortgages. Therefore, a landlord would be really stupid not to have its leases say so.

Without an SNDA, by choice, accident or as a result of a lender’s (rare) refusal to grant one, a tenant will be without the benefit of the “N” word – Non-Disturbance. Yes, “N” stands for Non-Disturbance and that means even if the lease is subordinate to a mortgage, if the lender forecloses on the property, the tenancy will continue in place, i.e., its possession will not be disturbed (hence, “non-disturbance”). That doesn’t mean the tenant will be “untouched,” but most, if not all, of the lease’s provisions will remain in effect and the lender or a buyer at a foreclosure sale will be the new landlord under the old lease, with most or all of the lease’s provisions intact. More about the “most” part will be discussed in a follow-up blog entry, but that’s enough of a teaser for now.

That having been said, tenants would be really stupid to plunge head-on into a lease and not have an SNDA unless they have carefully weighed the risk of not having one against their desire to get into a particular space or unless they have decided that the transaction cost to get an SNDA isn’t worth it, at least not from the existing lender. But, as a future installment of Ruminations will explore, simply agreeing to have one’s lease be subordinate to all mortgages, present and future, may have some collateral, unwanted effects.

Here’s a good place to explain why a Lender would agree to grant an SNDA, thereby giving up some of its rights. It’s really pretty simple. The borrower may sign the note and agree to repay the loan, but it is the tenant’s money that the borrower uses to make its loan payments. No tenant means no rent, and that means no repayment. So, does a lender want to see a leasable space “suck wind”? Generally not. A property’s leases are the real collateral for a loan, not the bricks and mortar. If it takes an SNDA for a tenant to place its John Hancock on a lease, almost all lenders will grant one. There are some other reasons, and if one looks hard at this and future blog entries, they can be found.

So, that having been said, we are left with the “A” part of an SNDA. “A” stands for “apple” and also for “attornment,” a poorly understood concept, even by experienced attorneys. Here’s our way of explaining attornment. It’s simple – when a tenant attorns to its landlord’s transferee, the tenant agrees to be the transferee’s tenant. The trick is that without an agreement to the contrary, under common law, an attornment creates only a month-to-month tenancy. So, the “A” part of an SNDA corrects that little “issue,” and that “works” for both the tenant and the foreclosing lender.

To continue – a mortgage foreclosure “cuts off” or “cuts out” any property interest that is inferior to the mortgage. That includes most later liens. Unless there is a non-disturbance agreement in place, later leases as well as earlier ones that recite that they are subordinated to future mortgages are “cut-off,” i.e., effectively terminated. Now, in many jurisdictions, foreclosing lenders are required to name tenants with subordinate leases and this requirement can really hurt the lender because, just as a lender can toss out a tenant without “non-disturbance” rights, a tenant whose lease is foreclosed can just walk. And, when such a tenant “walks,” so does the rental income. Along with the rental income goes some part of the property’s value. So, lenders want all but really, really below market rent tenants to stay; that is, they want tenants to “attorn” to them. For that reason, to preserve mortgagability, a landlord will certainly want its leases to say that the tenant agrees to attorn to successor landlords and, at the option of mortgagees, to those mortgagees. Without such a provision in a lease, it may be difficult to get a mortgage. With or without such a provision in the lease, most lenders want to have a direct agreement with tenants (yes, they want privity) wherein the tenants agree to stick around after a foreclosure (i.e., to attorn to the lender). That’s one reason why lenders are willing to give an SNDA to a tenant and even negotiate over the terms of that SNDA.

For now, with thanks to Porky Pig, “th-th-th-that’s all folks.” Next week or soon thereafter, followers of this Ruminations blog will be treated by (or punished with) [choose one of the above] a somewhat “nuts and bolts” treatment of SNDA issues. It will be based, in part, on readers’ comments to this posting. So, please add your comments at



  1. Good clarification. I have a strip center with very
    Old buildings built under granfathered codes. To
    be able to demo it and rebuild I have a clause which
    says landlord (meaning me or a new owner) if we
    decide to redevelop we will offer new space in the redeveloped
    property to all tenants and if they don’t want it they have 120 days
    to find new space to their liking and move out. Comments?

    • Bob,
      If I was a tenant who had to vacate because I did not want to pay higher rents for the proposed redeveloped space, I would want to be assured that landlord was going forward with redevelopment, as opposed to reletting the existing space to a new tenant.

  2. Ira,
    Another solid Rumination (love it). I am bookmarking this and saving a pdf as a primer to my business folks when introducing SNDAs. What a great, plainly-written and concise description (esp. the attornment intro). I look forward to future installments. I have lots of hot buttons to crow about on the SNDA subtopics, but will do my best to let others have first crack. Internally, we broke down all SNDAs issues and elements into component parts to create the business case as to whether, why and at what cost. For us–a junior anchor tenant in a wide variety of center types–it boils down to a singular question: in this center, in this deal, at this time, what is non-disturbance worth?


  3. I still struggle with how to best assist my clients in evaluating the risk of not having an SNDA. I’m frequently encountering landlords who simply refuse to even ask their lender. Plus lenders are often charging exorbitant fees just for the privilege of receiving their form SNDA, and then tack on huge attorneys’ fees dare we negotiate it. Weighed against this is the fact that, for the many good reasons you point out in your blog, it’s hard to imagine the lender choosing to kick out a rent-paying tenant (unless the rent is significantly below market).

  4. From a shopping center owner’s prospective, the problem with recording a lot of SNDAs on leases where the Landlord would not normally record a Memo of Lease is that if the owner doesn’t follow up at lease expiration to get releases of the SND, then when teh owner sells or refinances, they will have some messy title clearance.

    Now, they can give the title company an affidavit saying the leases are expired or terminated, but unless they record the affidavit, these leases will continue to come up in subsequent title searches.

    You can require the tenant to sign a release in recordable form upon lease termination, but unless you have a system set up to do this for all tenants, then it is unlikely that it will happen. Most shopping center owners will do this for large tenants who have a recorded Memo of Lease, but not a small tenant who has an SNDA.

  5. Ira, thanks for your post. I’m surprised that you encountered that response from a prestigious law firm. I can only guess that in multi-occupancy properties, the landlord doesn’t want its title cluttered by dozens of inconvenient SNDA’s except from its largest occupants. Or he wants to avoid “relation back” issues upon a future advance or a refinance. In any event, I believe that in all 50 states the failure to record the SNDA will not affect its enforceability and any future lender who has actual notice of your occupancy has a duty to inquire and will learn of the unrecorded SNDA anyway. I think that in Puerto Rico the rule may be that if you don’t record, you don’t exist.

    With respect to you your general post, in the old days, landlords resisted granting conditional subordination language (i.e. subordination to future mortgages conditioned upon getting an SNDA) which stemmed from a traditional fear of bankers and the fear that this issue would drag out negotiations or kill deals. Some of the traditional arguments against granting such clauses included “without limitation”: (1) it will make the landlord’s lease non-financeable and the lender will never grant one (2) “with a tenant of your prestige, no lender would ever throw you out”. These arguments are worn, dated and lack credibility. Most annoying is that in-house lawyers and lender’s counsel are tougher on this issue than the clients they represent. In dealing with outside law firms, I always reach out for a senior partner who has been around the block. Argument #1 is simply bad advice if a lawyer so informs his client. Lenders are in the business of making loans, not killing them because a reputable, rent paying tenant seek nondisturbance protection. Argument #2 answers itself – a lender would have no trouble in guaranteeing nondisturbance to such a tenant. I appreciate that there are retailers who will budget their negotiating time in getting an SNDA provision and that is a valid risk analysis. However, all you need is to be foreclosed out once and lose your entire investment unless you renegotiate – in the New York City market, this is a real danger no matter who you are – and that is enough of a shock to toughen your approach thereafter. My experience has been that it is not that difficult to get an SNDA as such. But getting an acceptable one is a lot bigger battle, given all of the carve-outs lender’s counsel come up with. I await your future installments on that issue. One last note; on attornment language, it should never be made solely “at the option” of the new landlord. The attornment clause should be consistent with the concept of the SNDA – continuance of the lease to be automatic, whether the new landlord is a successor upon foreclosure or a ‘”bargain and sale” transferee. Again, which obligations of the landlord survive a transfer is the subject of further posts.

    • Ira, you mention that Landlords should negotiate into their loan commitments a provision wherein the lender agrees to grant SNDAs to certain tenants. That sounds like a good idea in theory but it may not be easy to come up with something “up front,” at the loan commitment stage, that will be acceptable to a tenant. Joel’s comment stating that it is “not that difficult to get an SNDA … but getting an acceptable one is a lot bigger battle,” seems to hit the mark and be the bigger problem. A lender’s form of SNDA is almost always a fairly one-sided document. What language would you add in your loan commitment that would cover this situaton?

      • Mark, the reluctance of loan servicers and some direct lenders to grant SNDAs pertains to post-loan leases and then only to small tenant leases. Large tenants or particularly attractive tenants, such as chain tenants, get SNDAs. It is the tenant with limited bargaining power that gets the refusals or the cold shoulder. Having a provision in the loan documents (which becomes easy when it is in the loan commitment) will get these tenants their SNDAs. As to what those SNDAs say, that’s another matter. But, that’s not a function of whether you can get one in the first place, something the “loan application” practice pointer is focused on; it is a function of the individual bargaining power of the requesting tenant.

        As to “what language,” I don’t think you can expect the lender to agree to anything other than to give SNDAs for future tenants, but you can negotiate for SNDAs to then-existing tenants on the forms attached to their leases, if there are such forms, or in form and substance substantially similar to existing SNDAs. That is achievable.

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