February 22, 2017

Best Practices: SNDA Fundamentals

by Gabriel B. Herman Gabriel B. Herman

Lenders financing the acquisition of real property or leasehold improvements should consider obtaining a Subordination, Non-disturbance, and Attornment Agreement (“SNDA”) when third party tenants lease a portion of the subject property.  A SNDA can ensure that a lender’s lien on property required to be taken as collateral by SOP 50 10 5(I) is senior to a tenant’s leasehold interest.

A SNDA contains three separate agreements that outline the rights that the lender, borrower (as landlord), and third party tenant have in the event of default.  At a minimum, a SNDA should be executed by the lender and third party tenant.

A SNDA features the following three agreements:


Subordination conditions require that the third party tenant subordinate its leasehold interest to the lender’s mortgage.  In many jurisdictions, a commercial tenant’s pre-existing leasehold interest may be senior even to a recorded mortgage.  Accordingly, a lender who has not obtained a subordination agreement will likely be required to honor the terms of the tenant’s lease after foreclosing.  Subordination agreements are crucial for lenders to obtain in order to create an interest in the foreclosed real estate that is not primed by a tenant.  A SBA lender who fails to obtain a subordination agreement could lose or encumber its lien priority on its real estate collateral, which could potentially jeopardize its guaranty.


Non-disturbance language prohibits a lender from evicting a third party tenant that performing and is not otherwise in default under its lease.  As a practical compromise, a lender may be willing to accept non-disturbance language in exchange for a tenant agreeing to subordinate its leasehold interest to the lien of lenders mortgage.


Attornment clauses require that the third party tenant recognize the lender as the landlord pursuant to the lease originally executed between the borrower (as landlord)  and tenant.  After foreclosing, a lender assumes the borrower’s role as landlord under the lease.  Attornment provisions should specify that the third party tenant will pay the lender the rent specified in the lease.  Taken together, the non-disturbance and attornment language create what amounts to a direct lease between the lender as landlord (having foreclosed on the property) and tenant.

When evaluating the necessity of a SNDA, lenders should review existing leases for the following conditions:

  • Lease Term:  A foreclosed upon property must often be sold subject to the remaining lease term.  The remaining term will impact a lenders ability to manage and dispose of the foreclosed on property.
  • Existing Subordination Terms:  A lender’s ability to negotiate and need to compromise on non-disturbance and attornment provisions may be effected by whether the existing lease already contains subordination language.
  • Right of First Refusal:  A SNDA may offer an opportunity for lenders to negotiate terms featured in the existing lease.  For example, a lender can require a tenant waive any existing right of first refusal to purchase the subject property.

For more information on SNDAs and related matters, please contact Gabe at or at 267-470-1227.