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The Pros and Cons of SNDAs

By Paul R. Diamond and David McClintick

Lawyers familiar with commercial leasing and lending transactions should be well-versed in the concepts of subordination, nondisturbance, and attornment. It is advantageous for both landlords and tenants to negotiate mutually satisfactory provisions in leases that address such concepts. The parties should also discuss the form of document the tenant may be required to enter into with the lender that will govern their relationship in the event the landlord's mortgage is foreclosed upon. This document fulfills the need for the lender (or its successor) and the tenant to predispose of various issues before the lease is wiped out or the parties are forced into a landlord-tenant relationship following a foreclosure.

First and foremost, the lender wants to make sure that the mortgage is superior to all other claims against the leased property in the event its borrower, the landlord, defaults under the mortgage loan. From a landlord's perspective, a tenant's interest in the leased property should automatically be deemed to be subordinate to the lender's interest; the tenant should attorn to the new owner of the property following a foreclosure, if in the absence of a nondisturbance agreement, the landlord does not elect to have the lease terminate as a result of the foreclosure. In any event, it is of critical importance to the lender that it not inherit certain of the landlord's obligations.

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