What is a subordination and non-disturbance agreement (SNDA) in industrial real estate?

What is a subordination and non-disturbance agreement (SNDA) in industrial real estate?

An SNDA is a tripartite agreement that defines the relationship between a commercial tenant, a landlord, and the landlord's mortgage lender. In GTA industrial real estate, SNDAs are most commonly required when a property is being financed or refinanced — the lender requires the tenant to acknowledge the mortgage's priority and to agree to certain obligations if the lender ever has to exercise its security. The three components of an SNDA each serve a distinct purpose. Subordination means the tenant agrees that their lease is subordinate — lower in priority — to the lender's mortgage. If the landlord defaults and the lender forecloses, the lender's mortgage interest takes priority over the tenant's lease rights. Without this agreement, a tenant whose lease predates the mortgage could potentially have a superior claim to the property. Landlords and lenders almost always require tenant subordination as a condition of financing. Non-disturbance is the tenant's protection in exchange for subordinating their lease. The lender agrees that if they foreclose on the property, they will not disturb the tenant's occupancy — the tenant can remain in the premises for the remaining lease term under the existing lease terms, provided the tenant is not in default. Without a non-disturbance agreement, a tenant could theoretically be evicted by a foreclosing lender even if the tenant has done nothing wrong. Non-disturbance protection is therefore a critical tenant right that should be negotiated into every GTA industrial lease where the property carries financing. Attornment means the tenant agrees to recognize the lender — or any successor owner after foreclosure — as the new landlord and to continue paying rent to them directly. This gives the lender or successor owner the benefit of the tenant's lease obligations without having to renegotiate the lease. From a practical standpoint, most GTA industrial tenants will encounter SNDA requests from landlords when new financing is placed on the property. Tenants should review SNDA documents carefully — specifically the non-disturbance language — to ensure the lender's obligations to the tenant are clearly stated and not qualified by excessive carve-outs. Some lender-form SNDAs include language that limits non-disturbance protection in ways that effectively eliminate the tenant's protection in certain foreclosure scenarios. Michael Law advises GTA industrial tenants on SNDA review, lease obligations, and transaction management. Contact Michael at mlaw@lennard.com or (905) 917-2045.