What Is an SNDA and Why Tenants Should Prioritize It in Today’s Lease Negotiations

When you’re negotiating a commercial lease, there are a lot of terms and clauses to think about. One of the most important—but often overlooked or seen as a "throw away" —is the SNDA. If you’re a tenant looking for office space, understanding what an SNDA is and why it matters can protect your business in ways you might not expect. This is especially critical in today’s economic environment, where many landlords are defaulting on loan commitments.

What Is an SNDA?

SNDA stands for Subordination, Non-Disturbance, and Attornment Agreement. It’s an agreement between the tenant, the landlord, and the landlord’s lender. Here’s what each part means:

1. Subordination: The tenant agrees that their lease is secondary to the lender’s mortgage. If the landlord defaults on their loan and the property goes into foreclosure, the mortgage takes priority.
2. Non-Disturbance: In return for subordination, the lender agrees not to evict the tenant as long as the tenant continues to follow the lease terms, even if the lender takes over ownership of the building.
3. Attornment: The tenant agrees to recognize the lender (or whoever buys the property in foreclosure) as the new landlord and continue paying rent under the existing lease terms.

Why Should Tenants Fight for an SNDA?

An SNDA might seem like a technical legal document, but it provides crucial protections for tenants. Here’s why it matters, especially in today’s environment:

1. Protect Your Lease in a Foreclosure

Without an SNDA, your lease could be at risk if your landlord defaults on their loan. The lender or a new owner might decide to terminate your lease, forcing you to relocate. An SNDA ensures you can stay in your space as long as you’re following the lease.

2. Business Continuity

Relocating your office can be disruptive and costly. From notifying clients to moving equipment, an unplanned move could impact your operations. An SNDA gives you peace of mind that you won’t face unexpected eviction due to issues outside your control.

3. Stability in an Uncertain Market

Many landlords are under financial pressure in today’s market. Rising interest rates and shifts in the demand for office space have led to increased loan defaults. Negotiating an SNDA ensures you’re protected from these external risks, allowing you to focus on running your business.

4. Preserve Your Investment in the Space

If you’ve spent significant money on tenant improvements, such as custom buildouts or specialized equipment, losing your lease could mean losing that investment. An SNDA helps safeguard these improvements by ensuring your lease survives a foreclosure.

Tips for Negotiating an SNDA

Here are a few steps to ensure you secure an SNDA:

1. Start Early: Bring up the SNDA during lease negotiations, not after the fact. Landlords and lenders may need time to review and approve the agreement.
2. Work with Professionals: A commercial real estate broker and an attorney can help you navigate the process and advocate for the strongest terms.
3. Understand the Lender’s Role: The landlord’s lender has the final say on the SNDA, so it’s important to ensure their involvement early on.
4. Focus on Non-Disturbance: While subordination is usually non-negotiable, the non-disturbance clause is where your protection lies. Make sure it’s included and clearly stated.

Why an SNDA Is a Must in Today’s Market

The current commercial real estate market is experiencing significant challenges. High vacancy rates, reduced office demand, and tighter lending standards mean landlords are under more pressure than ever. Unfortunately, some of that pressure is leading to loan defaults and property foreclosures.

As a tenant, you don’t want to be caught in the middle of these financial struggles. An SNDA is your safety net, ensuring that your business can continue to operate smoothly no matter what happens with your landlord’s finances.

Final Thoughts

In commercial real estate, details matter. Negotiating an SNDA might feel like an extra step, but it’s a critical one to protect your business. By ensuring your lease survives a foreclosure, an SNDA offers stability, security, and peace of mind. Don’t overlook this important agreement during lease negotiations, especially in today’s uncertain market. If you need help navigating this process, partnering with an experienced commercial real estate broker can make all the difference.