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  • Writer's pictureColin Dubel

Advantages & Disadvantages of SNDA's in Commercial Lending

In commercial mortgage lending, an SNDA (Subordination, Non-Disturbance, and Attornment) agreement is a legal document that outlines the relationships between a lender, borrower, and tenant(s) with respect to a specific property.

The three components of an SNDA are as follows:

  1. Subordination: This component allows the lender to maintain their first priority lien position in case the property owner defaults on their mortgage loan. By signing the SNDA, the tenant agrees to subordinate their leasehold interest to the lender's mortgage interest.

  2. Non-Disturbance: This component ensures that the tenant's leasehold interest will not be disturbed by the lender in case of foreclosure. In other words, the tenant can continue occupying the property and paying rent to the new owner (i.e., the lender) if the property is foreclosed.

  3. Attornment: This component requires the tenant to recognize and acknowledge the lender as their new landlord in case of foreclosure. The tenant agrees to continue paying rent to the new owner and comply with the terms and conditions of their lease agreement.

Advantages for the Lender:

  • Protection of their first-priority lien position in case of default by the borrower.

  • Assurance that they will not be affected by the tenant's leasehold interest in case of foreclosure.

  • The ability to maintain the property's income stream, which can be beneficial in recovering their loan proceeds.

Advantages for the Property Owner:

  • The SNDA can increase the likelihood of obtaining financing, as lenders are more likely to approve loans when they know their interests are protected.

  • The non-disturbance component of the SNDA can be a selling point for attracting and retaining tenants.

  • The attornment component of the SNDA can provide assurance to tenants that their leasehold interests will be respected in case of foreclosure.

Disadvantages for the Lender:

  • The subordination component of the SNDA can result in the lender's mortgage interest being secondary to other liens or interests, which can affect their ability to recover their loan proceeds in case of default.

  • The non-disturbance component of the SNDA can limit the lender's ability to take certain actions related to the property, such as modifying leases or terminating tenancies.

  • The attornment component of the SNDA can result in the lender assuming landlord responsibilities, which can be burdensome.

Disadvantages for the Property Owner:

  • The subordination component of the SNDA can limit the owner's ability to obtain additional financing or sell the property.

  • The non-disturbance component of the SNDA can limit the owner's ability to terminate leases or modify tenant agreements.

  • The attornment component of the SNDA can result in the owner losing control of the property in case of foreclosure.

If you have any questions about this article or would like to discuss a scenario of your own with our team, please feel free to contact Colin Dubel at colin@harborwestcommercial.com or 949-735-6415.

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