Subordination refers to the order of priority in the enforcement of rights. In other words, in this section, the pre-existing financing and/or modifications or extensions take precedent to the Lease.
For example, if a Lease is subordinate to a deed of trust and the Lender forecloses on such financing, then the buyer at the foreclosure sale may evict the tenant from the Premises. Conversely, if the Lease predates the financing, then absent a subordination clause such as 30.1, the buyer at a foreclosure sale would be forced to honor the Lease. Subordination of the Lease to new financing is highly undesirable from the Lessee’s point of view, absent a non-disturbance agreement such as that provided for in 30.3.
Attornment refers to the notion that the tenant is agreeing to acknowledge the purchaser at the foreclosure sale as the new landlord under the lease; they are responsible for honoring the Lease and treating the new owner as the Lessor.
The purpose of this section is to formalize the legal relationship that exists between the new owner of the property and a tenant. It gives the tenant a peace of mind knowing that if its landlord loses the leased property through foreclosure that its tenancy will not be disturbed. It also helps the lender avoid any consequences of having a leasehold interest in a superior position to its lien in the event of a foreclosure. The new owner may require the Lessee to sign a new lease containing the same terms as the original lease. The new owner, however, is not responsible for returning the Security Deposit at the end of the Term unless they received it from the original Lessor.
This clause is also referred to as “right of quiet enjoyment”. It states that upon acquiring title to the leased property through a foreclosure sale, the lender, or any other purchases at the sale, will “not disturb” the tenancy of the tenant, so long as the tenant is not in default, and that such tenancy will continue as if the foreclosure had never occurred. The Lessor is required to attempt to obtain a Non-Disturbance Agreement for the Lessee; if the Lessor is unable to, then the Lessee may contact the Lender directly to get one.
The information provided does not, and is not intended to, constitute legal advice; instead, all information is for general information purposes only. Consult an attorney for legal advice.