Commercial Tenants Beware!

Under California law, the Deed of Trust securing your landlord’s mortgage on the premises is first in time and superior in right to the rights under your lease. The foreclosure of the lender’s loan will, in the lender’s sole discretion, terminate your lease. Given the current environment of increasing commercial foreclosures, the foregoing scenario is becoming more and more commonplace. In order for you (the tenant) to protect your interest under the lease from being terminated in a foreclosure, you must require your landlord, as part of your lease negotiations, to have his lender execute a SUBORDINATION, NON DISTURBANCE, AND ATTORNMENT (“SNDA”) with you as the tenant.
An SNDA is simple but vital to your lease agreement.

The continued right of the tenant’s possession of the property is essential. The SNDA requires the tenant to (1) confirm the subordination of the lease to the lender’s Deed of Trust and any extensions or modifications to the Deed of Trust and (2) agree to attorn (recognize) the lender or a third party purchaser of the building at the foreclosure sale as the tenant’s new landlord under the lease. The only exception to the above is if the tenant is in default of the lease beyond any applicable cure set forth in the lease. With an executed SNDA, you require the lender to continue your lease for the balance of the term including options to renew and not to disrupt your possession, absent a default on your part.