1. SNDAs are documents that lenders require tenants to sign subordinating their leasehold interests to the lender's loan documents. However, obtaining signed SNDAs can be burdensome and in rare cases tenants have refused to sign to extract lease concessions. 2. The author worked with a title company to automatically subordinate tenant leasehold interests based on the SNDA language already in the leases, avoiding the need for separate SNDAs. The title company would agree to this for loans with favorable attributes and minimal risk. 3. This alternative cannot be used if a tenant previously refused to sign an SNDA for a property, as that would place a "cloud" on the title priority of that leasehold

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Who's On First? (Lien Priority)
A Question of Lien Priority and a Possible Alternative to Lender Required SNDAs
Those in the commercial real estate industry are all too familiar with Subordination, Non-
Disturbance & Attornment Agreements, also referred to as SNDAs. These are documents that
most lenders require tenants in a commercial building to execute with notarized signatures so
they can be recorded with a borrower's loan documents.
For those unfamiliar with the three parts of an SNDA, here's a short explanation.
The Subordination part means that the tenant agrees to make its leasehold interest in the property
junior to the interest of a third-party lender. This also gives a third-party lender the option to terminate the
lease in the event of a commercial foreclosure (absent a Non-Disturbance clause, discussed below).
The Non-Disturbance part means that in return for a tenant agreeing to subordinate its leasehold
interest to a lender, the lender agrees to recognize the tenant's rights under its leasehold interest as long as
it's not in default.
The Attornment part means that the tenant agrees to recognize and acknowledge any new owner of
the property as the new landlord, which would be of obvious importance to anyone buying investment
property based on the income stream from tenant leases.
An abbreviated version of the above three elements in an SNDA is already part of the boilerplate in
almost all industry approved commercial real estate leases. Nevertheless, many lenders still insist on
burdening a borrower and their tenants with a more comprehensive 2-6 page stand-alone SNDA that
requires notarized signatures for recordation with loan documents. Anyone who has been in this industry

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long enough knows that a lender's demand that tenants execute notarized SNDAs is not just an enormous
hassle, but in a few cases, an unintended invitation to tenants to jeopardize the financing and/or sale of a
property and here's why. A tenant's refusal to sign an SNDA that is required by a lender can make a
property very difficult, and in some cases impossible, to finance. Worse yet, because most lenders only
prepare and request SNDAs after loan approval has been obtained, a borrower will often discover a
tenant's unwillingness to execute an SNDA after they have already incurred costs for third party reports.
Most tenants have no problem signing SNDAs, but there are some who will use the occasion to try and
extract lease concessions that could have an adverse impact on loan proceeds or financing entirely. This
has been an occasional problem in our industry for a long time and while there are some lenders who only
require stand-alone SNDAs on leases with terms in excess of a year unless leases with terms under a year
have options to renew, it’s nevertheless still a hassle and can jeopardize a close.
More than a decade ago I decided I needed to find a work-around for this problem so I called a senior
title advisory officer I’ve known and worked with for a long time to see if they would consider an idea I
had in mind. I asked him if he would consider automatically subordinating a tenant’s leasehold interest to
a lender’s new loan based on the SNDA language already contained in that tenant’s executed lease. After
all, the tenant has already agreed to this condition in the very document that gives them a leasehold
interest. If the loan request I was asking the title company to automatically subordinate leasehold interests
on had any kind of favorable attributes I could call out to demonstrate there is minimal exposure to risk
for the title company, I would do so because title companies, like lenders, also underwrite risk, just
differently. The title officer agreed and this subsequently became a standard practice of mine for over a
decade. One to two weeks before I expected loan approval, I would send the title officer a rent roll and
copies of all the leases I wanted subordinated that contain the appropriate SNDA language. I would also
call out the page and section number where the SNDA provisions were located (title officers will greatly
appreciate that extra effort!). Once you receive the email from the title officer that they have agreed to
subordinate the leases, the email goes into the loan file to back up the lender’s instructions that state
“Title agrees to subordinate all leases to our 1st Trust Deed based on the SNDA language already
contained in the leases”, and voila it’s done. I’ve avoided having to obtain recordable stand-alone lender
SNDAs for almost all my loans doing this over the last fifteen years. Borrowers greatly appreciate it, as
do loan officers and investment sales brokers, and so do the handful of lenders sophisticated enough to
understand why and when to use this approach.
However, anyone contemplating the use of this alternative (when a lender allows it) needs to be aware
of at least one caveat. You cannot pursue this option with a title company if you first tried to get a stand-
alone SNDA executed by a tenant and discovered they won’t sign. That’s because you now have an

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obligation to disclose to the title company (and lender) that the tenant has expressed an unwillingness to
acknowledge that their leasehold interest is junior in lien priority to a new loan. Despite the SNDA
language in their lease, the tenant’s unwillingness to sign an SNDA means they are challenging the lien
priority of their leasehold interest and that effectively places a cloud of sorts on the title with regard to the
lien priority of that leasehold interest. Under these circumstances, no title company will automatically
subordinate that leasehold interest. This means that a lender will now require execution and recordation of
the very stand-alone SNDA that you have already demonstrated cannot be obtained.