SNDA Clauses in Commercial Leases: What Property Owners Should Know

Subordination, Non-Disturbance, and Attornment (SNDA) clauses are often treated as boilerplate by those new to commercial leasing. Experienced landlords know better. An SNDA agreement is not just a technical formality; it's a strategic tool that can impact tenant relations, financing flexibility, and asset valuation. A poorly negotiated SNDA can expose the property to legal and financial instability, while a well-drafted one strengthens long-term control over tenancy and income streams.

The Real Function of an SNDA Clause

At its core, an SNDA clause defines the relationship between a tenant and the landlord’s lender in the event of a foreclosure. This isn't about protecting one party over another—it's about clarifying obligations and expectations if ownership of the property changes due to loan default. But there's more at stake than just basic rights.

Lenders want tenants to subordinate their leases so that in a foreclosure, the lender can wipe the slate clean if needed. Tenants, on the other hand, want non-disturbance protections to ensure they won’t be evicted if they’ve complied with their lease. The attornment piece ensures that if the lender or a purchaser takes title, the tenant agrees to recognize that new owner as landlord. These aren’t mere formalities—they affect lease enforcement, tenant stability, and how the income stream from leases is underwritten by banks and investors.

Why Subordination Matters for Future Financing

Many property owners underestimate how subordination clauses affect their leverage with current and future lenders. If the lease is not subordinated, the lender inherits that lease in its entirety, even if it undermines the value of the property. That’s not ideal when the lease includes favorable terms for the tenant that a lender wouldn't want to assume.

Lenders often insist that all leases be subordinate to their mortgage. Without this assurance, the lender's collateral becomes less secure. This is especially important in value-add strategies where an investor plans to refinance or recapitalize within a few years. A non-subordinated lease could interfere with those goals.

However, property owners should never blanketly agree to subordination without non-disturbance language in place. Doing so exposes stable tenants to unnecessary risk and creates resistance during lease-up or renewals. A smart SNDA structure can offer subordination while preserving the tenant’s right to remain, which strikes a balance between financeability and occupancy stability.

The Non-Disturbance Trap

Some landlords assume that non-disturbance language is tenant-friendly and best avoided unless the tenant pushes hard for it. That approach is shortsighted. The absence of a non-disturbance agreement can make a lease nearly unmarketable to institutional tenants, especially in multi-tenant buildings where one lender’s action could trigger a chain reaction of lease terminations.

Non-disturbance is not just a tenant's concern—it's a safeguard for the income stream. Lenders also appreciate the stability it brings, as it preserves lease income after foreclosure. The real issue lies in the terms: what qualifies as a “default,” who has notice rights, how cure periods work, and whether a tenant’s rights are suspended or terminated during litigation or foreclosure processes. Each of these points affects the enforceability and risk profile of the lease from both a legal and financial perspective.

Attornment and the Control Dynamic

Attornment provisions are often glossed over, but they have practical implications in foreclosure scenarios. When a lender steps into the role of landlord, the tenant’s recognition of that change without renegotiating lease terms streamlines the transition. But that simplicity shouldn’t come at the expense of control.

Landlords should pay attention to whether the attornment is automatic or requires a formal notice. Automatic attornment can be advantageous, but only when paired with protections that preserve the landlord’s right to cure defaults or assign interest before foreclosure proceedings conclude. Otherwise, tenants might claim the right to delay or withhold rent under the premise of uncertain ownership. This becomes particularly thorny when the property is sold during foreclosure to a third-party purchaser who didn’t negotiate the original lease.

Lease Negotiation Timing and Leverage

The timing of SNDA discussions plays a critical role. Waiting until a loan is finalized or a lease is executed can create mismatched expectations. A lender may demand full subordination with no non-disturbance, and if that contradicts the signed lease, the landlord is caught between breaching the lease or missing financing.

Proactive owners address SNDA terms during initial lease negotiations. Even better, they integrate standard SNDA language into the lease and reference a lender-approved form of SNDA in the lease’s exhibits. This shortens future negotiation cycles and protects against costly amendments or tenant walkaways.

When negotiating with anchor tenants or credit tenants, landlords should expect those tenants to demand full non-disturbance protections and specific cure rights. In such cases, owners can negotiate partial subordination—allowing the lease to stand ahead of junior loans or future refinancings but subordinate to primary financing. These types of arrangements, if documented clearly, provide enough flexibility for capital events without sacrificing tenant commitments.

Institutional Tenants and Legal Reviews

Institutional tenants rarely sign leases without reviewing SNDA language through counsel, and their attorneys often propose heavily revised SNDA drafts. This is where having standardized SNDA protocols benefits the landlord. Accepting tenant-prepared SNDAs without a seasoned attorney’s review can lead to legal obligations that persist beyond foreclosure, such as ongoing indemnity clauses or unfavorable estoppel language.

Sophisticated landlords keep their SNDA formats lender-approved and periodically updated to reflect current lending standards. When a tenant pushes back, the landlord can offer pre-approved language that’s already acceptable to its lender, reducing back-and-forth and positioning the owner as organized and commercially reasonable.

SNDAs and Capital Market Expectations

Lenders and buyers in today’s market expect clean lease structures. During a refinance, the SNDA status of each lease can directly affect the loan-to-value ratio offered, the speed of underwriting, and even the lender’s willingness to proceed. In sales, prospective buyers often review the SNDA status of major tenants to assess post-closing cash flow stability.

If multiple tenants lack SNDAs, especially in a property with debt, investors and lenders view that as a red flag. It signals potential income disruption, additional legal costs, and a lack of standardized leasing practices. All of these can lower the valuation or increase the cap rate applied to the deal.

Well-organized landlords don’t wait until due diligence to organize their SNDAs. They maintain a current SNDA status chart across all leases and ensure that their lease abstracts highlight SNDA terms clearly. This isn’t just for internal reporting—it’s a sales tool when marketing the asset or preparing it for appraisal.

Practical Steps for Property Owners

To avoid pitfalls, property owners should build SNDA reviews into every lease transaction—new deals, renewals, amendments, or assignments. Work with legal counsel who understands the lender’s side as well as leasing dynamics, and ensure that any SNDA template is aligned with your current loan documents. This means going beyond basic forms pulled from old deals.

It also means maintaining ongoing communication with lenders about SNDA terms. If your financing requires tenant estoppels and SNDA agreements for future disbursements or draws, don’t leave that to chance. Structure your lease process to include those steps early on.

Lastly, institutionalize SNDA management across your portfolio. Whether using a lease administration system or a custom tracker, knowing the SNDA status for each tenant allows you to respond quickly during refinances, sales, or defaults. This operational discipline adds real value to the asset and builds credibility with investors and financial partners.