You have signed a lease as a tenant. The negotiations were long and convoluted, but the lease has been signed and the space has been built-out. You have moved your company into the space, paid the security deposit, and are paying the rent on a regular basis. All is well.
Then, later in the term, you receive some documents from the landlord entitled “Tenant Estoppel” or “Subordination, Non-Disturbance and Attornment Agreement,” also known as an “SNDA.” The lease states that you might be getting documents like these and are required to sign and return them in 10 days or you as the tenant will be in default under the lease.
They are just standard forms. No reason not to just sign and return them, correct? On the contrary, these simple form documents contain all sorts of hidden traps that you, as the tenant, must be aware of, otherwise you may face big problems later down the line. In this article, we will detail what information and events are covered in tenant estoppel and SNDAs, and the specific terms and conditions you should carefully consider when reviewing these documents as a tenant.
Conceptually, the tenant estoppel and SNDA are part of a normal lease transaction. The landlord will request that a tenant estoppel and/or SNDA be signed when the landlord is obtaining financing or when the property is being sold. These documents can actually benefit the tenant if they are carefully reviewed and negotiated and the tenant understands that these documents are as much a part of the lease as if contained in the original executed lease.
For example, the tenant estoppel will contain factual information about the lease that requires tenant confirmation. The document may state that there are no landlord defaults under the lease. If you, as tenant, are having issues with the landlord that could be asserted as a landlord default, when the tenant estoppel document is presented to you for signature, that is the time to raise and resolve with the landlord the outstanding lease issues. No landlord wants its prospective lender or buyer to see a tenant estoppel stating that “the landlord has failed after repeated requests to repair the leaking roof that is causing substantial damage to the premises.”
Further, the SNDA is a document that typically states that the lease will be “subordinate” to the mortgage loan and the lender’s interest in the property and that the tenant agrees to “attorn to,” or recognize, the lender or its assignee or transferee, as the new landlord. In the event of a foreclosure event, the document also states that the lender or new landlord agrees not to “disturb” the tenant’s rights under the lease, including the tenant’s right to possess the premises in accordance with the terms of the lease.
Why is this a key consideration for you as a tenant? Without “non-disturbance” language from a lender, if a lease is “subordinate” to the mortgage and the landlord defaults in its loan obligations, in a foreclosure proceeding the lender can terminate the lease and the tenant’s interest in the property. That means if your landlord defaults, it’s you who could be out on the street. Most tenants are not aware of this lender right. Although rarely enforced by lenders, the right exists and may be implemented where the tenant has attractive lease rates and terms or when the lender wants to remove the tenant and change the use of the property to make it more attractive for sale.
There are a number of traps and hidden exposure for the unwary in these documents. Not all tenant estoppel and SNDA documents are the same, and many contain factual errors if not properly completed by the landlord. Also, the documents state that the lender and/or buyer may rely on the information contained in the documents that are certified by the tenant to be true and correct. The tenant is “estopped” or prevented from enforcing the actual lease terms to the extent they are inconsistent with the Tenant estoppel and SNDA. If the tenant signs documents that contain incorrect information inconsistent with the lease, the lender or buyer can use the tenant’s own incorrect statements as a defense in an enforcement proceeding brought by tenant.
Here are some examples of typical language in these documents that the tenant needs to confirm:
The tenant estoppel and SNDA may also include provisions that bind the tenant in the future after the tenant estoppel and SNDA are signed. For example:
After the tenant estoppel or SNDA are signed, they should be kept with the lease files so that the tenant may comply with their terms as if they were part of the lease itself.
Remember, there is no such thing as a standard form tenant estoppel and SNDA. They require careful review, confirmation of the information contained therein, negotiation, and future compliance by the tenant.
If you have any questions about tenant estoppels and subordination, non-disturbance and attornment agreements, please contact Wally Cupkovic or Jack Parrino in our Chicago office, or Matt Buesching in our St. Louis.
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