Subordination Non Disturbance and Attornment Agreements (SNDAs) often seem like afterthoughts in commercial leasing as they govern the potential future relationship between a tenant and the landlord’s lender rather than the current relationship between the tenant and landlord. SNDA’s, however, should not be overlooked, as they are crucial to protecting a tenant’s interests in the event that a landlord is foreclosed upon and its lender takes over in its place. In the absence of an SNDA, a tenant may find itself at the mercy of a new landlord that has little obligation to honor the terms of tenant’s original lease. Thus, commercial tenants should be aware that SNDA’s exist to protect their rights and should have a basic understanding of how they operate.
As a quick overview, SNDA’s are comprised of three (3) main components, the:
Subordination: Where the Tenant agrees that Lender’s interest in the leased property takes precedence over Tenant’s lease interest in the event of a foreclosure;
Non-Disturbance: Where the Lender agrees to honor Tenant’s lease in the event Lender takes over for Landlord; and
Attornment: Where the Tenant agrees to recognize Lender as its new Landlord.
While most SNDA’s contain largely standard language, there is almost always room for some negotiation. This could be as simple as negotiating for clear tenant protections relative to potential lease defaults, or as complicated as negotiating for protections with regard to promised funding per the lease between a tenant and original landlord. Regardless, it is important that tenants take the time to understand SNDAs in their entirety in order to ensure that their rights are sufficiently protected. Thus, commercial tenants, particularly those seeking long term leases, would be well advised to consult with a knowledgeable real estate attorney both when deciding whether to seek an SNDA and when negotiating the same.
The required timeline for notice of eviction to holdover former homeowners was recently altered by the Southeastern Division of the Massachusetts Housing Court in Lenders Comm. Finance LLC v. Pestilli, et al., docket no. 16H83SP03779BR. After obtaining title, Lenders Commercial Finance brought a summary process action against the former-mortgagor who refused to vacate after receiving a 30-day notice to quit. The bank moved for summary judgment, requesting the court to enter judgment in its favor because no facts were disputed between the parties and it brought a valid action to evict. In a departure from long-standing practice, the court ruled that Section 12 of Massachusetts General Laws Chapter 186 requires service of a 90-day notice to quit in order to regain possession from the holdover former-mortgagor properly. The court based the ruling on the fact that no agreement existed between the purchasing mortgagee and the former mortgagor to pay rent for any definite rental period. This ruling is a marked departure from the longstanding principle that a former-mortgagor, as tenant-at-sufferance, is only entitled to “reasonable” notice prior to eviction, and customary practice provided 30 days’ notice to the holdover occupant.
The court’s ruling in Pestilli is an unpublished district court decision and stands only as persuasive authority for future summary process decisions. The ruling, however, may signal a shift in Massachusetts housing courts toward statutory interpretations that provide foreclosure occupants a longer period of notice before the mortgagee regains possession of foreclosed property. Should the standards set forth in this ruling be adopted widely, the timeline for eviction will be extended, creating additional burdens for the foreclosure purchaser and increased overall costs. In addition, the change will likely create an increase in “cash for keys” deals, under which the purchaser offers a deal to the former-mortgagor to vacate voluntarily and to forego challenging the right to possession. Evicting holdover tenants and former homeowners can be a complicated and fact-specific process. As such, you should contact an experienced attorney to ensure the proper timelines and grounds for eviction are present.