Tenants investing a significant amount of money into their premises should consider the risk that the landlord’s lender may one day foreclose on the property and terminate their lease. To avoid this outcome, tenants should request a Subordination, Non-disturbance, and Attornment Agreement, or SNDA , from their landlord’s lender. Most lenders, especially in today’s market, recognize tenants have a legitimate concern and are willing to provide such an agreement, and tenants with leverage often insist on them. Landlords do not oppose SNDAs since these agreements essentially take effect after the landlords have lost their interest in the property, such as by way of foreclosure.

When negotiating SNDAs, tenants should pay close attention to the following types of provisions:

TI Allowances.
Lenders will try to disclaim responsibility for any unpaid tenant improvement allowances. Tenants should request that lenders pay these allowances, especially when the amount is meaningful. Lenders will typically agree to this request.

Lease Amendments.
SNDAs often provide that the lender will not be subject to any lease amendments or modifications made without the lender’s written consent. Therefore, tenants who have signed an SNDA should seek the lender’s consent whenever amending an existing lease, especially if the amendment is material, such as a reduction in rent or term. Otherwise, they run the risk that the amendment will not be binding on the lender when the lender becomes the tenant’s new landlord.

Default.
Under the terms of an SNDA, the tenant will often be required to give the lender notice and an opportunity to cure any default before the tenant may exercise its rights under the lease. One way to ensure compliance with this requirement is to add the lender’s information to the notice section of the lease.  Further, lenders often request that tenants give them more time to cure the default, in addition to the amount of time the original landlord has under the lease.

Landlord’s Breach.
The lender will not want to be held responsible for any acts or omissions of the landlord resulting in a breach of the lease. Tenants should ensure that the SNDA requires lender to cure the prior landlord’s breach in the situation where the breach is ongoing after the lender takes possession of the property.

Prepayments.
SNDAs typically specify that the lender will not be liable for any credit to the tenant for prepaid rent made to the landlord in excess of one month. Landlords facing a cash crunch may want to offer the tenant a big discount in exchange for prepaying several months of rent, but given the restrictions of most SNDAs, tenants should avoid prepaying rents to landlords without the lender’s prior written consent.