SNDAs and Their Role in Commercial Lending

By Aaron Aguirre

September 7, 2023

In commercial lending, a plethora of legal agreements play an important role in the grand scheme of things, such as contributing to a Borrower receiving their funds in a timely manner and ensuring the loan transaction is safe and secure for the Lender. One of these crucial agreements is the Subordination, Non-Disturbance, and Attornment Agreement, more commonly known as “SNDA”. This post will provide a non-exhaustive overview of an SNDA, and its benefits regarding the commercial lending world.

What is an SNDA?

An SNDA is a legal document that will typically involve three key parties:

• a Lender, who is about to or has taken a security interest in a real estate property with Tenant(s).
• a Tenant with leasehold rights to a space located in said property.
• a Landlord or Borrower, who owns said property.

An SNDA serves as a tri-partite agreement that addresses the relationship between the above-mentioned parties when a commercial property is involved in a lending transaction. An SNDA is divided up as follows:

• Subordination Clause: This clause is a critical element of an SNDA. It outlines the order of priority between the Lender’s mortgage interest and any existing interests in the property. By subordinating their rights, the Tenant and the Landlord agree that the Lender’s claims take precedence in the case of default.
• Non-Disturbance Clause: This clause ensures that if the Borrower defaults on their loan and the property is foreclosed upon, the Tenant’s rights under their lease agreement will be protected. The Lender agrees not to terminate the lease and evict the Tenant upon foreclosure.
• Attornment Clause: This clause connects the Tenant to the Lender. It obligates the Tenant to recognize the Lender as the new Landlord in case of foreclosure. This clause helps to ensure a seamless transition of lease obligations and rental payments to the Lender, preserving the stream of rental income.

Why is an SNDA important?

Tenant Protection: SNDAs grant Tenants security by safeguarding their lease rights even if the Landlord defaults on their loan. This protection is significant for long-term tenants who have invested time and resources into their commercial units.

Lender Assurance and Mitigating Risk: A properly drafted SNDA clarifies the priority of lien positions until the loan is paid off and ensures that the property’s income will be maintained, even in the case of default. Without an SNDA’s protection, a lease could completely undermine the foreclosure process.

In Conclusion

Subordination, Non-Disturbance, and Attornment Agreements (SNDAs) are fundamental in Commercial Lending. They ensure the interests of all parties are safeguarded and that lending transactions proceed with confidence. Whether you’re a Tenant seeking security, a Lender aiming for protection, or a Borrower trying to obtain funds, understanding SNDAs can be a great first step toward a successful lending relationship. Please reach out to SW&M for assistance or if you have any questions regarding SNDAs, their purpose, the creation of SNDAs for Clients, or to confirm if they would benefit your loan transactions.

About the Author

Aaron Aguirre

Aaron Aguirre is a Loan Documentation Paralegal at SW&M with experience in the banking and insurance industries. Aaron assists in the research, due diligence reviewing, documentation, and processing of the firm’s commercial lending transactions. He works closely with attorneys to […]

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