Subordination puts your lease behind the landlord's loan in priority. Attornment means you agree to recognize a new owner after foreclosure as your landlord. Non-disturbance is the lender's promise that a foreclosure will not end your lease as long as you keep performing under the lease. The three are usually packaged in one document called an SNDA.
What this clause does
Most industrial buildings carry debt. The lender's security for that loan is the property, and the lender cares a great deal about where your lease sits in line relative to its loan. That order of priority decides what happens to your lease if the landlord stops paying and the lender forecloses.
In many states the general rule is that the earlier interest wins. If your lease came first, a foreclosure buyer usually takes the property subject to your lease. If the loan came first, a foreclosure can wipe your lease out. Lenders want to control that outcome, so leases typically include a subordination clause that automatically places your lease behind current and future financing.
This is not an abstract risk. Owners refinance, loans come due in a different rate environment than the one they were written in, and sometimes an owner cannot pay off or roll over a loan. If you have years left on your lease and serious money invested in the building, you want a lender problem to stay the landlord's problem.
The three pieces
Subordination: you agree your lease ranks behind the landlord's current and future loans. Lenders nearly always require it, and it is hard to refuse. Standing alone, it is risky for you, because it means a foreclosure could end your lease.
Attornment: you agree that if someone else becomes the landlord through foreclosure or a deed in lieu of foreclosure, you will recognize them as your landlord and keep performing. This protects the lender, which wants your rent to keep flowing.
Non-disturbance: the lender agrees that if it or a foreclosure buyer takes over, it will honor your lease and leave you in possession as long as you are current under the lease. This is the piece that protects you, and your agreement to subordinate should depend on getting it.
Lender notice and cure rights often come with the package. Lenders commonly ask that you notify them of any landlord default and give them time to fix it before you terminate or offset rent. That is reasonable, but make sure the extra cure period has a limit, so an urgent repair, such as a roof failure over your inventory, does not wait indefinitely.
Where it goes wrong
Many leases say the landlord will make reasonable efforts to get the lender to sign a non-disturbance agreement. That is not a commitment. If the lender says no, your subordination still stands. Ask that subordination to any future loan be conditioned on receiving a non-disturbance agreement, and that you receive one from the existing lender at signing or shortly after.
Lender forms carry their own traps. Common provisions say the lender is not bound by rent you paid more than a month in advance, by amendments it did not approve, by offsets for landlord defaults that happened before foreclosure, or by a security deposit it never received. Some limit the lender's duty to fund an unpaid tenant improvement allowance. If you have a large allowance, a free rent period, a purchase option or a right of first refusal, those exceptions matter. Read the lender's form as carefully as the lease itself.
The size of your investment should shape how hard you push. A company putting significant money into racking, power upgrades, conveyors and automation has a lot to lose if the lease disappears, and that justifies insisting on a signed non-disturbance agreement before the money is spent.
The owner's side of the table
For an owner, financing flexibility matters. Loan covenants, reserve requirements and lender approval thresholds for major leases all shape leasing decisions, and a mismatch between loan maturity and lease expirations can complicate a refinance. Keep the subordination clause broad enough to refinance without chasing tenant signatures, and give tenants a firm but reasonable deadline to sign lender forms. A tenant that signs lender documents quickly and cleanly makes a building easier to finance and to sell.
Whichever side you are on, have a real estate attorney review both the lease clause and any lender form before anyone signs.
If you are the tenant
- Make your subordination to future loans conditional on receiving a non-disturbance agreement from that lender.
- Ask for an SNDA from the existing lender at signing, especially if you are investing heavily in improvements.
- Read the lender's SNDA form for exceptions covering prepaid rent, offsets, improvement allowances, security deposits and purchase rights.
- Negotiate a reasonable period to review lender forms and the right to request commercially reasonable changes.
- Ask your attorney whether recording a memorandum of lease makes sense so future lenders and buyers have notice of your rights.
If you are the owner
- Review your loan covenants before signing a major lease; some lenders must approve leases above a size threshold.
- Keep the subordination clause broad enough to cover refinancings and future loans.
- Require tenants to return lender forms within a set number of days, with reasonable changes allowed, so closings are not delayed.
Go deeper in Justin's books
Both books walk through leases chapter by chapter, from the tenant side and the owner side.
all debt has a balance, a maturity date, and covenants.
Common questions
What is an SNDA in a commercial lease?
SNDA stands for subordination, non-disturbance and attornment agreement. It is usually signed by the tenant, the landlord and the lender. The tenant ranks its lease behind the loan and agrees to recognize a new owner, and the lender agrees not to disturb the tenant's possession after a foreclosure if the tenant is current under the lease.
Can I lose my warehouse if my landlord's lender forecloses?
It is possible if your lease is subordinate to the loan and you have no non-disturbance agreement. With one, the lender or foreclosure buyer generally must honor your lease as long as you are not in default. That is why non-disturbance is worth negotiating before you sign.
Do I have to sign the SNDA my landlord's lender sends me?
Most leases require you to sign subordination documents within a short period, and refusing can be a default. Many leases also let you request reasonable changes. Have your attorney review the lender's form promptly so you do not miss the deadline.
General information about how industrial leases commonly work, not legal advice. Every lease is different: have a California real estate attorney review yours before you sign.