SNDA Can Protect Would-Be Business Tenants From Getting An Early Boot When Leasing From Rent Skimming Commercial Landlords Facing Foreclosure

In Bend, Oregon, The Bulletin reports:

• Most businesses lease, putting them at risk of eviction if their landlord defaults. But as Todd and Myrna Dow, of Sisters, learned the hard way, a legal document — called a subordination, non-disturbance and attornment agreement — exists to protect against that very scenario, which has become more common with the down economy.(1) “Landlords losing property has been atypical in Central Oregon,” said Tom Sayeg, a partner at the Karnopp Petersen LLP law firm in Bend. “Normally, it’s tenants that go out of business, but now the shoe’s on the other foot.”

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• The agreements, also called SNDAs, are common among national chains, he said. They typically appear as an exhibit to a lease and are negotiated at the same time as the lease, but they can be drafted separately or at any time during a lease, Sayeg said. Todd Dow said he had never heard of an SNDA agreement until he consulted his attorney after learning of it in an interview with The Bulletin.

• Still, Dow said his attorney told him they are relatively uncommon in Central Oregon. For the most part, they have been uncommon among small-business owners, Sayeg said. When the economy is good, tenants rarely worry about their landlords defaulting. However, because of the economy, more commercial property owners are defaulting, making an SNDA agreement a good idea, he said. “The SNDA is by far the most common way for tenants to protect themselves,” Sayeg said.

• Generally, when a landlord defaults, the lender can wipe out the lease. There are exceptions, mainly if the lease predates the landlord’s loan agreement with the lender. But if it doesn’t, an SNDA provides protection to a tenant if a landlord defaults. It’s an agreement between the lender and the tenant that requires the bank to assume the lease as long as the tenant stays current on his or her lease payments, although the lender often negotiates to void portions of the lease, such as obligations for tenant improvements, Sayeg said. The agreement also ensures the lease is assigned to whoever purchases the property from the bank. “The SNDA gives the tenant assurances that if the bank takes the property back, their lease will be recognized,” Sayeg said.

For the story, see Eviction protection (When landlords default, leasing businesses suffer the consequences — unless they signed a legal agreement that’s been uncommon locally).

(1) Reportedly, Todd Dow estimates the couple’s framing business will lose $20,000 because of the unexpected, early boot from the rented premises. He said the building’s former owner never told Dow he was in danger of default, the story states.