1. Subordination. Many lenders prepare SNDA agreements to provide that your lease is subject to the provisions of the mortgage. You should agree to be subordinate only to the lien of the mortgage and any ensuing renewals, assignments, and modifications but not to the mortgage itself. Because you usually do not have access to copies of the mortgage, and did not negotiate your lease with the mortgage in mind, you should not be bound by provisions in a mortgage that modify your lease.
2. Nondisturbance. Your lease should only be terminated in the manner set forth by its terms and conditions. The typical SNDA provision drafted by lenders eliminates whatever eviction protections that you have negotiated by adding that your possession of the premises will not be disturbed “so long as no default exists under the lease beyond any applicable cure periods.” The lender’s right to possession of the premises should be controlled by what is contained in your lease; you should not lose these rights through the SNDA agreement. Renewal options and options to expand also should not be altered by any provisions in an SNDA agreement.
3. Casualty. Many SNDA agreements have a clause that states that the proceeds can be used to pay down the mortgage instead of utilizing the money to rebuild a tenant’s building. Where that is the case, you will often be unable to continue your business operations in a damaged building. If the proceeds are applied to fix the damaged collateral, the lender still has its asset as collateral. You [whose rent payments give the landlord the capability to pay down its loan to the bank] can then remain in business and continue paying rent to the landlord. Since you are paying for the cost of the insurance, this is not an unreasonable position to take. It ensures your business can operate without interruption.
4. Condemnation awards. In the event you have installed costly improvements, you have most likely added provisions in your lease permitting you to enjoy the improvements for the useful life of the items constructed. The lender’s SNDA can undo all that you have sought to safeguard if it requires that the mortgage governs the disposition of condemnation awards. The lender could then decide to apply the proceeds to pay down the landlord’s mortgage and not utilize the funds to rebuild your store. You will be at the mercy of the lender as to how award will be distributed. This could prevent you from recovering the money you invested in the improvements.
5. Acts or omissions of any prior landlord. Lenders will rarely agree to pay money damages to tenants. That is why lenders add provisions in their SNDA agreements stating that they are not liable for any acts or omissions of prior landlords. Despite this reluctance, it is reasonable for you to insist the lender remedy breaches or defaults that exist after the date they obtain possession of the premises, where the lease would require any other landlord to do so. The lender should be aware of such conditions prior to the date it succeeds to the landlord’s interest in the premises. If the lender wants to receive the rents and other ownership benefits, it must also agree to the responsibilities of ownership.
6. Offsets and counterclaims. You will likely not be successful if you ask your successor landlord to take anything out of its pocket to remedy a default. That is why lenders add provisions to their SNDA agreements stating that they are not liable for any offsets and counterclaims of prior landlords. In determining whether something should be a valid offset item, the question should be: “Would the successor landlord be obligated to remedy the matter if you, as tenant, did not previously take care of the issue?” If yes, it should be a valid offset item. If no, it should not be a valid offset item. The successor landlord should be responsible for any of the obligations that it would have to comply with once it obtains possession of the premises. You should also be able to assert valid counterclaims against old claims that a lender revives. Otherwise, you will not be able to properly defend yourself.
7. Amendment, modification or cancellation of the Lease. Lenders often provide that they must consent to any amendment, modification or cancellation of your lease. If a landlord permits a reduction of a tenant’s material obligations under the lease it would be reasonable for a lender to insist that its consent is needed as a pre-condition to the effectiveness of the change. Tenants should question a lender’s desire, however, to get involved in insignificant changes in a lease’s day-to-day operational obligations. So, you should ask that the lender give up the need for its consent if the proposed change to your lease is not material.
Lenders should be mindful that tenants play a key role in the lending relationship. Without your involvement in a commercial lease, the economics of the loan do not add up. Without you as a tenant, the landlord would be holding space that is not providing income to satisfy its loan. Your concerns are important, not only because you have the right to depend on what you bargained for in your lease, but also because it brings value to the property and that value is the lender’s real security for the loan.
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