SNDA Agreements in Net Lease: What to Negotiate, What to Accept

TL;DR

A Subordination, Non-Disturbance, and Attornment Agreement (SNDA) is the contract that ties the tenant's lease to the lender's mortgage. It addresses three questions: (1) does the lease get wiped out if the lender forecloses (subordination), (2) does the lender promise to honor the lease anyway (non-disturbance), and (3) does the tenant agree to pay the lender / new owner instead of the original landlord post-foreclosure (attornment)?

For a net lease investor who is acquiring a deal, the SNDA matters because it sets the floor of risk for the tenant — and bad SNDA terms are a structural defect that won't show up in cap rate comps. For a broker representing a deal, the SNDA is the document most likely to slow down the close if it wasn't reviewed early.

The Three Components, in Plain English

Subordination

The tenant agrees that its lease is junior to the lender's mortgage. If the lender forecloses, the foreclosure can wipe out the lease — the new owner doesn't have to honor it.

This is the default in most modern leases (the lease form contains a self-subordination clause, sometimes called an "automatic subordination" or "deemed subordination" provision). Without subordination, the lender wouldn't lend, because a lease that pre-dates the mortgage would survive foreclosure and tie the lender's hands.

Non-Disturbance

The lender agrees that despite the subordination, if the tenant is not in default, the lender will not terminate the lease in foreclosure. The tenant gets to stay.

This is the "ND" in SNDA — it's the protection the tenant gets in exchange for agreeing to subordinate.

Attornment

The tenant agrees that after foreclosure, the tenant will recognize the lender (or the new owner) as the new landlord and pay rent to them under the existing lease terms. No new lease negotiation; the old one continues, just with a new landlord.

This protects the lender / buyer post-foreclosure: they inherit a stream of rent and a tenant who is contractually obligated to keep paying under the existing terms.

The Five Clauses to Read Carefully

1. The Definition of "Default" That Triggers Loss of Non-Disturbance

The non-disturbance protection typically only applies when the tenant is not in default. The question is what "default" means.

Watch for SNDA language that defines default broadly — e.g., "any default by tenant under the lease, regardless of cure" — versus a more tenant-favorable formulation that requires the lender to give the tenant the same notice and cure rights it would have under the lease.

The push: ND should kick in unless the tenant is in uncured material default as defined in the lease itself, with the lender obligated to send notice and provide the standard cure period.

2. Modifications to the Lease the Lender Won't Honor

Many SNDAs include a clause where the lender disclaims responsibility for any lease modifications made without the lender's consent.

Practical impact: if the original landlord and tenant subsequently negotiated a TI allowance, a rent abatement, or a renewal-option modification, and the lender wasn't included in the conversation, the lender post-foreclosure may not be bound by those changes.

The push: the lender should honor lease modifications that don't materially impair the lender's collateral. Material changes (rent reductions, term extensions beyond the loan maturity, expanded landlord obligations) reasonably require lender consent. But modest operational adjustments shouldn't be a foreclosure-day "gotcha."

3. Construction Funds, TI Allowances, and Reserves

If the original landlord owed the tenant a TI allowance or construction funds and hadn't paid them when the lender foreclosed, who funds them?

Most SNDAs explicitly say the lender does not assume the original landlord's funding obligations. This means a tenant who's expecting a $200,000 TI allowance from a landlord that's now in foreclosure may not get it from the new owner.

Underwriting question for a buyer: are there any unfunded landlord obligations on the lease? Estoppel certificates ask this question explicitly. If the answer is "yes," budget for it as a closing-day cost.

4. The Termination Right Carve-Outs

Some SNDAs preserve specific tenant termination rights (casualty / condemnation triggers, co-tenancy failures in shopping centers, exclusive-use violations). Some don't.

The push: tenants typically negotiate to preserve their existing lease termination rights post-foreclosure. From the lender's perspective, this is a partial give — a tenant who can terminate is a less reliable cash flow stream — but most reputable lenders will honor pre-existing termination rights.

5. Notice + Cure Periods Going to the Lender

A well-drafted SNDA gives the lender the right to receive notice of any landlord default by the tenant, and a cure period to fix it before the tenant can exercise termination rights or offsets.

This is a protection for the lender, not the tenant. From a buyer's perspective, a tight notice provision (e.g., "30 days to lender after tenant gives notice to landlord, plus 30 additional days to commence cure") is favorable. A weak provision (e.g., no lender notice required) is a meaningful collateral risk.

What's Typically Non-Negotiable

Some SNDA clauses are essentially standard and not worth burning negotiation capital on:

• Attornment to lender's successors and assigns — standard. The lender wants flexibility to assign the loan / transfer collateral.
• Tenant's representation that the lease is in full force and effect — standard. The lender needs the tenant on record about the lease status.
• Tenant's waiver of certain offset rights against the lender — standard. The lender doesn't want to inherit prior landlord disputes as offset claims.
• Tenant's agreement that the lender's obligations end when the lender's interest ends — standard.

Three Red Flags That Should Slow the Deal Down

Red Flag 1: The lender refuses to provide an SNDA at all

Some lenders take the position that the lease's automatic subordination clause is enough and they won't sign a separate SNDA. For an investment-grade tenant doing a sale-leaseback, this is unusual and should prompt a conversation with the tenant — they may decline to sign without an SNDA, putting the financing in jeopardy.

Red Flag 2: The SNDA disclaims any non-disturbance protection

Read the document carefully. Some lender-form SNDAs are really "subordination and attornment" agreements with no ND component at all — meaning the lender preserves the right to wipe out the lease in foreclosure. For a tenant-credit-driven net lease deal, this is structurally a problem: the tenant is essentially offering the lender (and any future foreclosure buyer) a fresh negotiation post-default.

For a buyer who is acquiring the deal subject to financing, this matters because your future lender may take a similar position, and you'll need to redo this exercise.

Red Flag 3: Conflicting SNDA + Lease Provisions

If the SNDA contradicts the lease (e.g., SNDA says "tenant has no right of first refusal" but the lease grants one), the SNDA generally controls. This is sometimes used to strip away tenant rights through a back door — push for SNDA terms that expressly preserve all tenant rights under the lease except those specifically modified.

Practical Workflow

For a broker representing a buyer:

1. Request the SNDA early in due diligence, alongside the lease and estoppel certificate. Don't wait for the lender to surface it days before close.
2. Have your real estate attorney compare the SNDA to the lease. Look for the five clauses above.
3. If the SNDA is unfavorable, raise it as a closing condition: ask the seller to procure a tenant-favorable amendment. This is most achievable when the deal is being sold subject to existing financing.
4. For a free-and-clear deal, the SNDA still matters — it'll be the template you negotiate when your buyer puts new financing on the asset.

For a broker representing the seller / sponsor:

1. Have a clean, signed SNDA in the data room at launch. This eliminates a major buyer-side pushback and accelerates close.
2. If the SNDA has known issues, disclose them upfront with a proposed remediation. Surprises in escrow kill deals more often than known issues do.

A Note on Form

Most institutional lenders (Fannie Mae, Freddie Mac, and the major CMBS shelves) have standard-form SNDAs they'll start from. Life companies and balance-sheet lenders are more variable. The form itself is a negotiating starting point — don't treat the lender's first draft as final.

The document is technical, but the principles are straightforward: subordination protects the lender, non-disturbance protects the tenant, attornment protects everyone post-foreclosure. The negotiation is about who absorbs which risks if the deal goes sideways.