Ruminations Wrap-Up On SNDAs – Nuts and Bolts All Used Up

Print Friendly, PDF & Email

Thanks for the great feedback and additional ideas to be explored when it comes to SNDAs. If you’ve just tuned in, you might want to look at the two prior installments of December 25 and January 2. Don’t miss the comments posted there as well.

On January 2, Ruminations covered the “engine” of the typical lender’s form of SNDA, i.e., the provisions lenders like to include so as to limit their obligations to the tenant and thereby limit their risks. Now we’ll move on to some other provisions typically found in a lender’s form. The first has to do with the “A” in “SNDA,” attornment. Assuming the SNDA states that the lender, its successor or the party who purchases the collateral property at a foreclosure agrees to recognize the tenant as its own tenant once the borrower-landlord loses the property, the SNDA should say that the tenant agrees to attorn to that new landlord. [If you want to refresh your recollection about what it means to “attorn,” look at the December 25 Ruminations posting.] There is nothing wrong with requiring the tenant to agree to attorn to the new landlord in return for the “non-disturbance,” but one needs to look at the language of the SNDA itself. A common construction might say: “Tenant hereby attorns to [Successor Landlord] and agrees to promptly execute and deliver any instrument that Successor Landlord may reasonably request to evidence such attornment… .” That’s fine, but a tenant can’t attorn to someone until it is the landlord. A better way to write this might be: “Upon [Successor Landlord] becoming owner of Landlord’s interest in the Property, Tenant shall attorn to Successor Landlord and agrees to promptly execute and deliver any instrument that Successor Landlord may reasonably request to evidence such attornment… .

Another set or list of provisions one might find in a typical lender’s form of SNDA often begins with: “Tenant agrees for the benefit of Lender that so long as the Mortgage remains a lien upon the Property, Tenant will not without Lender’s prior written consent:” [to the following].Then, you could expect a list of items like those in each of the following paragraphs.

Pay any rent more than one (1) month in advance of accrual – to which we would offer the following alternative: “Pay any rent more than one (1) month in advance of the date it is due unless the Lease requires that such payment be made or such payment has been expressly approved by Lender.” This is a reasonable request on the part of a lender, though one could argue that it is none of the lender’s business if the tenant makes such an advance payment. After all, the SNDA provides that tenant will not get a credit for such payments if the lender should take over as landlord. On the other hand, no prudent tenant should be making advance payments to its landlord. Thus, why waste bargaining chips by giving the lender a fight over this issue? By the way, while similar to a provision we encountered earlier in the typical lender’s SNDA where the Lender disclaimed liability for such advance payments, this adds just a little “bite” and bars the tenant from tempting its landlord with a “pot of gold” to run off with just before defaulting on its mortgage.

Surrender the tenant’s estate under the Lease – To the tenant, this one goes a little too far. After all, the tenant has bargained for certain rights to terminate the lease. For example, if certain contingencies are not satisfied, the tenant might have the right to terminate the lease and end its tenancy. Or, the lease might set forth some conditions, such as a co-tenancy provision or a road closing provision, any of which might give the tenant the same rights. Or, the landlord might commit a serious, bargain-breaking default wherein the lease or the law might allow the tenant to surrender its estate. Now, one could argue that “surrender” means to just “turn in the keys” or enter into an early termination agreement with the landlord. If courts uniformly understood that to be the word’s exclusive and limited meaning, perhaps this “item” could pass unchanged. But, that’s not the real world. Many judges came up from the ranks of “tort” lawyers, never having appreciated the special language or concepts of “dirt” law. So, the SNDA should honor this particular legitimate lenders’ concern, but express the “bargain” more accurately, such as by saying: “Surrender the tenant’s estate under the Lease unless same is validly undertaken by Tenant pursuant to the terms of the Lease or is ordered by a court of competent jurisdiction.” If the lender wants to get a “shot” at curing its borrower’s default under the lease before the tenant goes for a court order ending the lease, then the SNDA could contain such a provision, a discussion of which follows below.

Consent to termination of the Lease by the landlord thereunder – This isn’t a real problem so long as some creative mind doesn’t construe it to mean that the tenant has to oppose any such attempt. The particularly cautious might want to substitute: “Consent to termination of the Lease by the landlord thereunder except where the landlord thereunder may do so without Tenant’s consent.”

Given that each lease is an important part of a lender’s collateral, it is very reasonable for a lender to guard itself against a situation wherein the tenant could rightfully terminate its lease based on a breach of the lease by its landlord. There are a lot of formulations to accomplish that by allowing the lender to intervene and cure a possible lease-ending landlord-default. Absent some unusual circumstances, a tenant is benefited by having a qualified, motivated party, such as a the lender, step in and do so. The problem, however, is: “how quickly will the lender step in?” Let’s remember, we’re talking about defaults that would give the tenant the right to terminate the lease and where the tenant really wants to do so. We aren’t talking about involving the lender, and the associated delays, in every little item.

A difficult issue to deal with is what would happen if the lender commits itself to curing its borrower’s non-monetary default, but can’t do so until it gets control of the property. Often, lenders want an unlimited time to pursue a foreclosure procedure and their form of SNDA will provide for such a “grace period.” That isn’t very helpful to a tenant facing a problem that falls someplace between more than insignificantly interfering with its business and materially interfering with its business. In an ideal world, a balance needs to be struck. One very good solution is for the landlord to agree that its lender may enter the property and perform any one or more of the landlord’s obligations. In fact, don’t be surprised if the loan documents don’t already say that. Another approach is to require the lender to obligate itself in writing that it will perform the landlord’s obligation and that it will commence foreclosure or receivership proceedings within a short time period thereafter if it can’t otherwise cure the landlord’s default. Lastly, there is a point beyond which a tenant shouldn’t be obligated to wait, and an “outside” limit for the lender commencing the cure is always appropriate.

A lender’s form of SNDA will frequently include an “exculpation” provision. In this commentator’s view it should be no more protective of the lender, once it becomes the landlord, than the provision in the lease itself. Thus, if the lease has a truly negotiated landlord exculpation provision, tenants with bargaining power would be well served to limit the lender’s protection to what any other successor landlord would enjoy. For a Ruminator’s rant on exculpation clauses, you can look at the August 22, 2011 posting by clicking Here.

Lastly, here is an administrative point that applies as well to any other situation when the payee or the address for payment is changed. In the context of an SNDA, lenders sometimes include a provision requiring the tenant to pay their rent directly to the lender upon notice from the lender. Unless a recorded Assignment of Rents or similar document gave the lender the right to demand such a payment, tenants should be wary to pay the lender (or any purported transferree) without the written direction or consent of the then landlord. In an SNDA, that can be accomplished by having the landlord sign the document as well. Also, from an administrative point of view, a tenant should have enough time to “get its act together and change its payment records.” So, it would not be unreasonable in an SNDA (or even in a lease itself, as to transferees) to say: “Tenant shall be under no obligation to pay any rent and all other monies due or to become due to Lender until twenty (20) days after Tenant receives written notice from Lender to do so. Any payments not sent to Lender during the above referenced twenty (20) day period shall remain due and payable and if not sent to Lender during that time period, shall still be paid to the otherwise proper payee in accordance with the terms of the Lease.

Without doubt, there are many, many other possible issues to be raised in an SNDA, given how creative and paranoid we in the SNDA “business” can be. This isn’t only because people who handle “legal” things are innately so, but also because there is some lingering belief among lenders that, as Jafar reminded Alladin in the prison, the “golden rule” always applies – “he who has the gold, makes the rules.” So, Ruminations beseeches its readers to pitch in with their own thoughts. You can argue with the opinions expressed in this series on SNDAs (or those on any topic) or you can merely add to the discussion with additional points of view or about different negotiating issues. is the place to do so.



  1. Ira:

    Thank you for the outstanding 3-part series on SNDA’s. I’ve negotiated many, many SNDA’s but your analysis and comments have given me a whole new perspective on the SNDA. Great work; thank you.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.