You have signed a lease as a tenant. The negotiations were long and convoluted, but the lease has been signed and the space has been built-out. You have moved your company into the space, paid the security deposit, and are paying the rent on a regular basis. All is well.
Then, later in the term, you receive some documents from the landlord entitled “Tenant Estoppel” or “Subordination, Non-Disturbance and Attornment Agreement,” also known as an “SNDA.” The lease states that you might be getting documents like these and are required to sign and return them in 10 days or you as the tenant will be in default under the lease.
They are just standard forms. No reason not to just sign and return them, correct? On the contrary, these simple form documents contain all sorts of hidden traps that you, as the tenant, must be aware of, otherwise you may face big problems later down the line. In this article, we will detail what information and events are covered in tenant estoppel and SNDAs, and the specific terms and conditions you should carefully consider when reviewing these documents as a tenant.
What are tenant estoppels and SNDAs?
Conceptually, the tenant estoppel and SNDA are part of a normal lease transaction. The landlord will request that a tenant estoppel and/or SNDA be signed when the landlord is obtaining financing or when the property is being sold. These documents can actually benefit the tenant if they are carefully reviewed and negotiated and the tenant understands that these documents are as much a part of the lease as if contained in the original executed lease.
For example, the tenant estoppel will contain factual information about the lease that requires tenant confirmation. The document may state that there are no landlord defaults under the lease. If you, as tenant, are having issues with the landlord that could be asserted as a landlord default, when the tenant estoppel document is presented to you for signature, that is the time to raise and resolve with the landlord the outstanding lease issues. No landlord wants its prospective lender or buyer to see a tenant estoppel stating that “the landlord has failed after repeated requests to repair the leaking roof that is causing substantial damage to the premises.”
Further, the SNDA is a document that typically states that the lease will be “subordinate” to the mortgage loan and the lender’s interest in the property and that the tenant agrees to “attorn to,” or recognize, the lender or its assignee or transferee, as the new landlord. In the event of a foreclosure event, the document also states that the lender or new landlord agrees not to “disturb” the tenant’s rights under the lease, including the tenant’s right to possess the premises in accordance with the terms of the lease.
Why is this a key consideration for you as a tenant? Without “non-disturbance” language from a lender, if a lease is “subordinate” to the mortgage and the landlord defaults in its loan obligations, in a foreclosure proceeding the lender can terminate the lease and the tenant’s interest in the property. That means if your landlord defaults, it’s you who could be out on the street. Most tenants are not aware of this lender right. Although rarely enforced by lenders, the right exists and may be implemented where the tenant has attractive lease rates and terms or when the lender wants to remove the tenant and change the use of the property to make it more attractive for sale.
Key terms and what to look for
There are a number of traps and hidden exposure for the unwary in these documents. Not all tenant estoppel and SNDA documents are the same, and many contain factual errors if not properly completed by the landlord. Also, the documents state that the lender and/or buyer may rely on the information contained in the documents that are certified by the tenant to be true and correct. The tenant is “estopped” or prevented from enforcing the actual lease terms to the extent they are inconsistent with the Tenant estoppel and SNDA. If the tenant signs documents that contain incorrect information inconsistent with the lease, the lender or buyer can use the tenant’s own incorrect statements as a defense in an enforcement proceeding brought by tenant.
Here are some examples of typical language in these documents that the tenant needs to confirm:
- Lease Term: “The lease commenced on X date and expires on Y date.”
- This may seem straightforward but many times a lease will state that it commences on a date that occurs after an event, such as the completion of a landlord’s work on the property. For that reason, the date needs to be independently confirmed.
- Rent: “The current base rent paid by tenant is Z. The current additional rent, including common area expenses, taxes and insurance, paid by tenant is ZZ.”
- The additional rent is not usually contained in the lease itself since it is subject to change from time to time and requires confirmation.
- Rent Abatement: “All rent abatement periods have expired under the lease and tenant has no right to any further free rent or rent abatement.”
- Sometimes, rent abatement in a lease, if applicable, does not occur entirely at the beginning of the lease term. For accounting and tax purposes, free rent periods may be staggered throughout the lease. Check for this.
- Rent Prepayment: “No rents have been prepaid in advance with the exception of the current month.”
- If rents have been prepaid and not identified, the tenant could find themselves in a “pay twice” position.
- Tenant Improvement Allowances: “All sums owed by landlord to tenant including tenant improvement and construction allowances have been paid in full.”
- If not, the tenant could lose its rights to these monies.
- Landlord Default: “There are currently no landlord defaults under the lease.”
- If there are defaults by landlord that should have been raised, and were not, the lender or new landlord may not have any liability to remedy the underlying problems.
- Security Deposit: “The amount of the security deposit is X.”
- If there is a security deposit that is not reflected in the tenant estoppel, the tenant could lose its rights to return of the security deposit.
- Renewal/Termination Options: “The only renewal options or early termination options under the lease are as follows: None.”
- If the tenant agrees to this and there are renewal or early termination options, the tenant could lose its rights to assert these options.
- Lease Amendments: “There are no lease amendments except as set forth herein.”
- If there is a lease amendment that benefits the tenant and the tenant does not include it in the tenant estoppel or SNDA, that amendment may not be enforceable against the lender or new landlord.
The tenant estoppel and SNDA may also include provisions that bind the tenant in the future after the tenant estoppel and SNDA are signed. For example:
- Rent Prepayment:
- Similar to the above reference to rent prepayment, the document states that the lender will not recognize any rent prepayment by the tenant in the future. So, if the tenant has prepaid rent, the tenant may have to “pay twice.”
- Notice to Lender: (i) if Landlord Default or (ii) if notice to Landlord is required under the lease: “Notice to lender is required in event of a landlord default with lender opportunity but not a duty to cure the default.”
- If the tenant fails to provide notice to the lender of a landlord default, the notice may be invalidated.
- If the tenant fails to provide notice to the lender where notice to landlord is required, the notice may be invalidated. The tenant could lose the right to a renewal option or termination option if proper notice is not given.
- No Lease Amendments Without Lender Consent: “Any lease amendment, modification, renewal or extension shall require lender consent.”
- If the tenant enters into a lease amendment including, by way of example, an early termination of the lease or a reduction in rent, it will not be recognized by the lender if the lender has not consented to the amendment.
After the tenant estoppel or SNDA are signed, they should be kept with the lease files so that the tenant may comply with their terms as if they were part of the lease itself.
Remember, there is no such thing as a standard form tenant estoppel and SNDA. They require careful review, confirmation of the information contained therein, negotiation, and future compliance by the tenant.