As a commercial office tenant, your lease has many details that can potentially affect your business—not the least of which are the legal nuances.
As real estate advisors, we are often asked questions about legal items in a lease. While we have years of experience negotiating and explaining some of the legal items, it’s always wise to consult with an attorney. That said, I would like to share four questions I often receive about a common clause: the SNDA.
WHAT IS AN SNDA?
An SNDA is a subordination, non-disturbance and attornment agreement, which protects a tenant from being kicked out of their premises in the event that their landlord loses the building to the lender (bank) or if the building is sold. That’s the layman’s definition, but if you are interested in additional detail you can read a more thorough definition.
SHOULD MY LEASE HAVE AN SNDA?
Not every office lease requires an SNDA. From the tenant’s point of view, you’ll want protection if there’s a chance that you’ll be asked to leave. Consider the following example: You lease space in a New York City office building that isn’t performing very well. Whoever takes over the building might want to repurpose it into a mixture of first-floor retail and apartments or multifamily units. The new owner will have the right to ask you to vacate. In that situation, you’ll want to protect your company with an SNDA.
On the flipside, let’s say you lease space in a suburban office building. The best use for that building will probably always be office space. In that case, you probably won’t need an SNDA because the odds of being asked to leave are minimal.
WHAT ARE THE ODDS I WILL BE ASKED TO VACATE?
It’s never easy for a real estate owner to have a tenant removed from their building. It takes time and resources and can cause many hours of aggravation. Unless you’re in a market that might require a building to be repurposed, your landlord will most likely not ask you to leave.
Consider the lull in cash flow if you move out. The landlord would be taking a risk, not knowing how long it might take to re-lease your space. In most cases, it would be easier for them to keep you (a happy, rent-paying tenant) in their building.
HOW DO I ASK FOR AN SNDA?
In my experience, asking your landlord for an SNDA is not easy. Landlords have to ask their lenders for permission to grant an SNDA and many lenders will only do so for large tenants. From a business point of view, the lender doesn’t want small tenants impeding a bigger future project.
That doesn’t mean you shouldn’t ask. But given all the factors involved, your real estate advisor can help evaluate your situation, decide whether you should ask for an SNDA and outline the best strategy to do so.
Based in Princeton, N.J., Vinny specializes in tenant and landlord representation for Colliers International, working directly with his clients in the acquisition and disposition of office space. For more commercial real estate insight and trends, follow Vinny on Twitter.