A good commercial lease should have a section dedicated to the SNDA. From the Tenant’s perspective, one of the most critical elements of the SNDA is the “Non-Disturbance” provision. This provision clarifies that in the event the landlord’s lender forecloses on the property and comes into ownership of the property through this process (including the possibility of a deed in lieu of foreclosure), the lender will honor the lease and the tenant will be allowed to remain at the property under all the terms and conditions of the lease. The SNDA should be broad enough to cover third party purchasers at a foreclosure sale as well. It is typically a good idea to record the SNDA in the public records.
If the landlord has a mortgage, or goes through the process of getting a mortgage for the property, the landlord’s lender will likely require an SNDA, at a minimum, with respect to tenants that occupy the property prior to the lender making the loan. From the landlord’s perspective, the landlord wants to satisfy both the tenant and the lender. So, the landlord is often stuck between trying to meet the lender’s requirements and keeping the tenant happy. From the lender’s perspective, one of the most critical elements of the SNDA is the “Subordination” provision. This provision subordinates the leasehold interest to the mortgage interest in the property so that the lender has a first position mortgage.
A well-prepared SNDA will expressly state that any lease amendments or modifications must be approved by the lender having a mortgage on the property. It is easy for a tenant and/or a landlord to overlook this requirement or not take the time to obtain the mortgage holder’s consent. We recommend landlords and tenants take the prudent step of getting the mortgage holder’s consent, even if it means there will be some amount of delay or additional negotiation. If not, and if the mortgage holder ever forecloses, the terms of the amendment might not be enforceable against a lender or other third party that steps into the shoes of the landlord through foreclosure proceedings.