Summary:
Lenders that finance income-producing property rely on lease cash flow, so they need Subordination, Non-Disturbance and Attornment (SNDA) agreements that align tenant rights with loan enforcement. A well-drafted SNDA addresses subordination mechanics, foreclosure scenarios, lease amendments, and tenant attornment in specific, enforceable terms. From a lender’s perspective, an unfavorable SNDA can create more risk than silence, so declining a flawed form often protects the loan file.
When a lender reviews a lease, the question is simple: Will this lease support or undermine the collateral and repayment of the loan? Every clause that touches rent, term, renewal, assignment, use, and default feeds that analysis.
Leases sit at the intersection of legal rights and project economics. For lenders that work with homebuilders, single-family rental portfolios, landbanking structures, or mixed-use developments, a lease that looks harmless to a landlord can create serious exposure for a loan. This is where the SNDA becomes a core risk allocation tool rather than a boilerplate attachment.
Subordination, Non Disturbance and Attornment, Clause by Clause
An SNDA aligns priorities and expectations between the lender, the landlord, and the tenant. On subordination, lenders focus on clear language that places the lease behind the deed of trust or mortgage, without vague conditions. The agreement should state how and when subordination occurs, whether automatically at closing or upon recording, and should tie any tenant protections to the existence of the loan documents in their current form.
The non-disturbance portion should protect tenants only so long as they comply with the lease. Best practices include express conditions: no tenant default beyond applicable cure periods, no unauthorized amendments, and no expansion of tenant rights without lender consent. On attornment, lenders look for a straightforward commitment that, after foreclosure or a deed-in-lieu, the tenant will recognize the lender or purchaser as landlord under the lease on the same economic terms, without new obligations imposed on the lender.
Why No SNDA Can Be Better Than a Bad One
A poorly drafted SNDA can lock in tenant rights that interfere with loan enforcement, reduce flexibility during workouts, or dilute the value of the collateral. Examples include clauses that require the lender to fund tenant improvement allowances without access to corresponding reserves, provisions that prevent termination even after a major casualty without adequate insurance proceeds, or limits on the lender’s ability to reject problematic amendments between landlord and tenant.
If the proposed SNDA elevates tenant protections beyond market norms or contradicts the loan documents, lenders often gain more security by declining the agreement and relying on default state law priority rules and the language in their deed of trust. The goal is not to secure an SNDA at any cost; the goal is to secure an SNDA that reinforces the lender’s position in foreclosure, restructuring, and eventual disposition. When that outcome is not available, walking away from a bad SNDA preserves leverage.
Aligning Leases and SNDAs With Loan Strategy
Lease and SNDA terms influence every stage of financing, from underwriting to exit. For guidance on aligning leases and SNDAs with lender interests in homebuilding, single-family development, and related projects, contact Mier Law, PLLC at (972) 619-6290. The firm is based in Texas and serves clients nationwide.