Non-Disturbance and Attornment Agreement

Non-disturbance and Attornment Agreement: Understanding its Importance for Tenants and Landlords

When it comes to leasing commercial space, tenants and landlords often negotiate terms that are included in the lease agreement. However, one important document that is often overlooked is the non-disturbance and attornment agreement (NDA). This agreement is critical to protect the tenant`s rights in case the landlord`s ownership changes.

Simply put, NDA is a contract between the tenant, the landlord, and the landlord`s lender. It ensures that the tenant`s lease can continue unaffected in the event of a default by the landlord. It also confirms that the tenant will recognize and honor the new landlord, who may acquire the property in foreclosure or as a result of a sale.

Why is an NDA important to tenants?

Imagine a scenario where you have a thriving business operating out of a commercial space, and your landlord is forced into foreclosure. In such an instance, the lender becomes the owner of the property, and they may terminate your lease, forcing you to vacate the premises. This can have a detrimental effect on your business, and it is a scenario that all tenants aim to avoid.

An NDA prevents such a situation from occurring by ensuring that the tenant can continue to occupy the leased space even if the ownership of the property changes. In other words, the tenant`s right to occupy the leased space is protected despite any foreclosure or sale of the property by the landlord.

Why is an NDA important to landlords?

For landlords, an NDA is essential because it gives them some security when seeking financing for their property. It is a guarantee to the lender that the tenant`s lease will not be disturbed if the property goes into foreclosure or is sold.

Furthermore, if the lender takes over the property, they expect the tenant to make rent payments as agreed. An attornment agreement, which is a component of the NDA, obligates the tenant to accept the new landlord`s ownership and continue to make rental payments to them.

What does an NDA include?

The NDA includes three essential provisions: non-disturbance, attornment, and subordination.

The non-disturbance provision protects the tenant`s rights under the lease by ensuring that the landlord`s lender agrees not to disturb the tenant`s tenancy if the landlord defaults on their loan.

The attornment provision obligates the tenant to accept a new landlord if the property is sold or foreclosed upon. This provision ensures continuity of the lease, and the tenant`s obligation to pay rent continues uninterrupted under the new ownership.

The subordination provision ensures that the lender`s mortgage has priority over the tenant`s lease. This means that if the property goes into foreclosure, the lender can choose to terminate the lease to sell the property. However, with the non-disturbance and attornment provisions, the tenant`s lease is protected even in such situations.

In conclusion, an NDA is an essential document for both tenants and landlords. It protects the tenant`s business and investment by guaranteeing continuity of their lease, and it provides the landlord with assurance when seeking financing for their property. It is, therefore, critical that tenants and landlords comprehend the importance of this agreement and include it in their lease negotiations.