Second installment of our critical lease clauses series as well as part 2 of the Subordination, Non-Disturbance, Atornment clause. Today we will discuss the non-disturbance agreement - the tenant's protection from the risk of having a subordinate lease - as well the provisions often worked into these agreements. But first, if you missed the first istallment, here is The Tenant's Guide to Critical Lease Clauses, Part 1.
Non-Disturbance Agreement
When met with the challenge of subordination, the tenant should seek what is called a non-disturbance agreement, in addition to avoiding agreements that include any type of automatic subordination as discussed last week. For protection from a situation in which the lease has no priority, the tenant should obtain the non-disturbance agreement from the lender upon lease execution. This creates a contractual relationship directly with the mortgage lender and secures the tenants absorption of space in a default situation. The ideal terms to such an agreement would leave the lender, who is taking control of the property, to be obliged to adhere to the terms of the original lease its amendments. Of course this can be difficult to get. Lenders often only agree to not disrupt use of the premises or even try to amend the rights of the tenant. Here are some typical ways they go about this:
Subleases, Assignments, Terminations, Surrenders, and Amendments
The lender may seek to nullify any amendment to the lease without the input or consent of the lender. Further, the lender may want to nullify other agreements like assignments, terminations, options, etc. As a tenant, you will want to protect the rights you negotiated for in your original lease.
State of Accounts
Another alteration to tenants’ rights that the lender will also often pursue is to not recognize any accounts that may exist between the landlord and tenant (e.g. prepaid rents or security deposits).
Notice and Opportunity to Cure Provisions
The lender may ask the tenant to provide notice of any and all defects, and rather than terminate the lease, allow the lender time to remedy them. Be careful with these provisions, as lenders will often request more time and leniency than afforded the landlord in the original lease. Protect yourself from any such circumstance, wherein you will be bound to endure conditions that are unfit for business.
Read Part 3 & Part 4
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