Q Protecting Your Interests AS A LENDER SUBORDINATION, NON‑DISTURBANCE AND ATTORNMENT FORMS BY KEATON J. MILLER, KRIEG DEVAULT LLP Question: My commercial borrower is leasing to a big-name tenant who refuses to sign our bank’s standard Subordination, Non-Disturbance, and Attornment form and is asking us to sign their form. What’s the purpose of an SNDA, and how should we handle this? Answer: SNDAs are agreements between a lender and the tenant of a property on which the lender has a mortgage. In principle, they serve to benefit both the tenant and the lender by outlining various rights of both parties, primarily by dealing with what happens in the event of a borrower/landlord default. Simply enough, the key elements are outlined in the name of the agreement: ▶ Subordination: The tenant agrees that its leasehold interest is subordinate, or inferior, to the mortgage of the lender. ▶ Non-Disturbance: The lender agrees not to disturb the tenant in the event the landlord defaults on its loan and has to foreclose. ▶ Attornment: The tenant agrees to attorn, or recognize and accept, the lender or subsequent purchaser as their landlord in the event of foreclosure. The need for a tenant to subordinate its leasehold interest may seem odd to some. Isn’t a mortgage always going to be superior to a tenant’s leasehold interest? Under Indiana law, no! Unless the parties agree otherwise, the timing of the mortgage or lease recording determines priority. Ind. Code 32-21-4-1(c) says that a “conveyance* or mortgage takes priority according to the time of its recording.” For lenders, this means that a lease or memorandum of lease recorded first has priority over the bank’s mortgage. For tenants, this means that a mortgage recorded prior to their lease or memorandum of lease could be evicted upon a loan default by their landlord. While the big-name tenant’s SNDA may contain the core elements of an SNDA, lenders should be wary of signing these without fully understanding all the terms. These agreements oftentimes allow the tenant to amend or terminate the lease without the bank’s consent. (Bank forms typically prohibit this.) Tenant forms of SNDAs may also obligate the bank to cure landlord defaults under the lease or restrict the lender’s access to the property. So, what’s a bank to do? COMPLIANCE CONNECTION Unless the parties agree otherwise, the timing of the mortgage or lease recording determines priority. “ 32 HOOSIERBANKER
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