At the end of December, there were $1.6 billion in bank-owned retail properties, according to New York-based research firm Real Capital Analytics. As more retail properties end up in the hands of court-appointed receivers, tenants are entering uncertain territory when it comes to their rights and responsibilities.

The growing number of receiverships is shedding new light on a lease clause that got little attention during the industry’s boom years: subordination, non-disturbance and attornment (SNDA) agreements. Such agreements protect both lenders and tenants in the event that a lender forecloses on a property or moves to have a receiver named.

The SNDA agreement is actually three clauses in one:

  • The subordination clause is one in which a tenant agrees that its lease is subordinate to the mortgage on the property, or that a lender’s interests come first if a landlord runs into trouble.
  • The non-disturbance piece is a guarantee from the lender that in the event of a foreclosure it will not disturb a tenant’s occupancy and will recognize the rights of the lease.
  • The attornment piece of the clause is an agreement by the tenant that if a lender forecloses, the tenant will recognize the lender or a court-appointed receiver as the new landlord.
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