A successful close on a commercial lease can be quite an accomplishment for any business moving into such a space. A company can plan ahead for many years based on their lease and the expectation that they will be undisturbed in their current office location.
Any company that wants to ensure they are able to remain at their current location despite any movement that may occur in the commercial real estate market should seek an SNDA with the help of their tenant reps. This may be challenging to obtain from a landlord; however, for a company that needs the confidence that their lease and current location is secure, these agreements may be worth pursuing.
What Is An SNDA?
A Subordination and Non-Disturbance Agreement, also known as an SNDA or a “Non-Disturb,” is an agreement made between a tenant and a landlord at the time a commercial lease is finalized and signed. The agreement states that in the event a landlord defaults on their loan with a lender and the lender assumes ownership of the building, the tenant will not be forced to vacate their leased location.
This agreement may be very important for larger companies with a big investment and established business in their current location.
SNDAs are Difficult to Obtain
As worthwhile as an SNDA may be for any company signing a commercial lease, they can be difficult to obtain from a landlord and usually require the assistance of experienced tenant reps to negotiate such an agreement. This is due to the fact that in order to provide an SNDA to a lessee, a landlord must consult with their lender and request the ability to enter into such an agreement.
Essentially, the landlord must make a request to their lender that in the event they default on their loan, the lender will not displace the tenant when the lender assumes ownership of the building. This would prevent the lender from repurposing the building after foreclosure, renting to a higher paying tenant, or doing anything else to force the current lessee to leave until the end of their current lease. This is why these agreements are often difficult to obtain.
Negotiating An SNDA
Not every tenant will be able to obtain an SNDA from their landlord. Still, with the help of experienced tenant reps, these agreements may be well worth the negotiating effort since they protect the investment a tenant makes when signing the lease. Landlords may be more willing to provide an SNDA to a larger tenant who is committing to a larger space or to a desirable lessee with whom they are really motivated to close a deal.
Yet in most other cases, skillful tenant reps must attempt to negotiate such a contract. Depending upon the current market and economic conditions, a tenant may pass up a commercial lease in a specific building when they are not able to secure an SNDA.
The decision on how to handle the issue of obtaining an SNDA will be different for every company. While many businesses may not be able to convince a landlord to provide such an agreement, larger companies with more at risk may consider letting their tenant reps negotiate for an SNDA. It can be an important addition to a commercial lease when a company really needs this lease security. Even if a building is repossessed by the lender, this essential agreement allows a tenant to stay where they are until the end of their current lease!