Subordination and Nondisturbance Agreements, 7 Title Research Checks

A subordination, nondisturbance and attornment agreement is three promises stapled together, and it decides something that matters enormously to whoever is paying rent — whether a tenant still has a lease the morning after the lender forecloses. Lawyers on the leasing side read these closely, and so do the property attorneys advising a buyer. Lawyers on the title research side often do not see them at all, because the executed original sits in a lease file and only some versions ever reach the recorder.

That gap is where the trouble lives. The lease file tells you what the parties agreed. The land record tells you what binds a successor who was not at the table, and on a foreclosure or a portfolio acquisition the second question is the one being asked.

What an SNDA actually does

The name is a list of its three moving parts, and they pull in different directions.

• Subordination puts the lease behind the lender’s mortgage in priority. Without it, a lease signed before the mortgage was recorded may outrank it, which lenders dislike because it constrains what they can do with the collateral.
• Nondisturbance is the tenant’s consideration for agreeing to that. The lender promises that so long as the tenant is not in default, a foreclosure will not terminate the lease or disturb possession.
• Attornment is the tenant’s promise to recognize whoever ends up owning the building as its new landlord, without renegotiating.

Take away nondisturbance and the tenant has subordinated for nothing. Take away attornment and the buyer at the foreclosure sale may find a tenant who says the lease died with the old owner. The three travel together for a reason.

Why it belongs in the title research

Commercial leases are frequently not recorded in full. What gets recorded, when anything does, is a memorandum of lease — a short instrument naming the parties, the premises and the term, filed to give constructive notice without publishing the rent. An SNDA follows the same pattern. Some are recorded in full, some are referenced in a memorandum, and a great many are never recorded at all.

That produces four possible states for any given tenancy, and a search will distinguish them.

1. A recorded memorandum with a recorded SNDA. The cleanest case, and the successor’s position is readable from the record.
2. A recorded memorandum with no SNDA of record. Priority runs on recording order alone, and the tenant’s protection depends on a document the record does not hold.
3. No memorandum, but an SNDA of record. Unusual, and worth reading carefully, because it tells you a lender cared enough to paper this one.
4. Nothing recorded at all. The tenancy exists, possession itself may give notice under state law, and none of it is visible in an index.

Possession as notice is the doctrine that catches people. In many states an occupant in visible possession puts a purchaser on inquiry notice of whatever rights that occupant holds, recorded or not, which is a legal conclusion that varies by jurisdiction and is worth confirming rather than assuming.

Seven checks on a recorded SNDA

1. Confirm what was actually recorded

A memorandum is not the lease and an abstract is not the agreement. Pull the instrument itself and read what is in it, because the recorded version is sometimes a short-form summary that omits the operative conditions.

2. Fix the recording sequence

Note the recording date and instrument number of the mortgage, the memorandum of lease and the SNDA, in that order. Priority questions are decided against this sequence, and the sequence is the one thing the record establishes cleanly.

3. Identify the mortgage it subordinates to

An SNDA subordinates to a named loan. If that loan has since been refinanced, assigned or replaced, the agreement may or may not reach the successor, and the answer is usually in the definitions rather than the body. This is the same diligence problem as an assignment chain with a gap in it.

4. Read the conditions on nondisturbance

The lender’s promise is almost always conditioned. No default by the tenant, no amendment of the lease without consent, no prepayment of rent beyond a stated period. A tenant who prepaid a year of rent for a concession may have stepped outside its own protection.

5. Check for amendments and consents

Amendments to the SNDA, consents to a lease modification, and estoppel certificates are separately recordable and frequently indexed under different party names. A search that runs only the current owner will miss instruments filed under a prior landlord or an assigned lender.

6. Trace the current holder

Loans move. The party who signed the nondisturbance may have nothing to do with the loan today, and the obligation follows the mortgage rather than the signatory. Establishing who holds the mortgage now is ordinary chain work and it is the part most often skipped.

7. Watch for a ground lease underneath

Where the landlord is itself a lessee, there are two leases and potentially two lenders, and the subordination structure is layered. That is its own exercise, described in ground lease and leasehold title research.

When the SNDA is missing

Its absence from the record is a finding, not a dead end. It means the tenant’s position rests on recording order, on state law about possession, and on whatever the parties hold in their own files. For a buyer or a lender in acquisition diligence, the practical response is to request estoppel certificates from the tenants directly and compare what they claim against what the record shows. Disagreement between those two sources is the single most useful signal in the exercise.

It is also worth saying plainly that a records search reports what was recorded and indexed over the term searched. It is not an inventory of every agreement affecting the property, and unrecorded side letters are common in commercial leasing. Whether an unrecorded SNDA binds a successor is a legal conclusion for counsel, not something an abstractor can resolve.

Ordering the search

AFX Research runs in-person searches, certified abstracts, and full document copies from any U.S. county — delivered in 12 to 72 hours and backed by our search guarantee. On commercial files that means the memorandum, the SNDA, the mortgage and every assignment and amendment filed against the parcel, with copies of the recorded instruments attached rather than summarized, so the sequence can be read rather than inferred.

Order a title search for the parcel and the parties, or compare our search products if you are scoping a portfolio rather than a single building.