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    Subordination Non Disclosure Agreement

    Sunday 10th October 2021

    If you are a tenant of commercial property, your landlord may have asked you or are asking you to enter into a subordination, non-disruption and separation agreement or “SNDA”. This is often a requirement in the lease. The very title of the SNDA is discouraging and indicates the complexity of balancing the interests of the parties gathered not voluntarily, but by their mutual relationship with a lessor. This article provides an introduction to SNDA. In case you are faced with one, you will know why you want one and where you can get help. An SNDA is an agreement between a tenant and the lessor`s (and ideally the lessor`s) lender to establish the relationship between the tenant and the lender (who would otherwise not have a direct relationship) and to establish relative priorities between them. As the title of an SNDA suggests, the agreement consists of three main elements: subordination, non-disturbance, and attornment. The typical SNDA says that the lease is subordinated to the mortgage (or junior), but that if the mortgage is foreclosed, the new owner does not disturb the tenant`s property as part of their lease as long as the tenant is not late in the provisions of the rental agreement and the tenant recognizes and recognizes the new owner as its owner. Thus, the lease remains in force, with the new owner becoming the owner. However, since the first draft of the SNDA is usually prepared by the mortgage lender, it will generally offer some safeguards for the new owner who has become a homeowner. In this case, the interests of the mortgage lender and the new owner diverge, on the one hand, and the tenant, on the other. For example, the form of the SNDA of a mortgage lender generally provides that the new owner of the building is not held liable, after enforcement, for the acts or omissions of the previous lessor, (ii) is liable for the return of a deposit, unless it is actually received by the lender and transferred to the new owner, (iii) related to rent paid more than one month in advance, (iv) be related to changes to the lease agreement made without the agreement of the lender or (v) be responsible for the completion of improvements to the tenant`s surface. Many tenants will roll back some or all of these provisions, especially if the lessor has, for example, significant construction obligations in the lease agreement.

    As a rule, it is possible to reach compromises with which both parties can live, but sometimes it is impossible to reach an agreement and one or both parties decide that they would rather seize their chances without SNDA than execute one that they deem too painful. This provision is very important for tenants. In the absence of it, a performance lender with a prior guarantee instrument or its buyer may refuse recognition of the rental contract and the tenant`s right of ownership thereafter. When negotiating a lease, tenants should consider whether lenders have an interest in securing the property on which the leased premises are located and, if so, consider requiring, under the terms of the lease, that the lessor require its lender to enter into a non-disruption agreement with respect to the lease. As the name suggests, an SNDA is made up of three chords, all packed in a suitable package. The three aspects of the SNDA will only apply if the leased property is seized by a lender with a security interest (mortgage or trust) secured by the rental property. Let`s first look at the “subordination” part of the SNDA. If the lease exists at the time the lender registers its security right in the immovable property, the lease is greater than the interest of the collateral and, upon enforcement by the lender, the title received by the buyer at the time of the forced sale is subordinated to or subject to the existing lease.

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