"Historically, the average tenant hasn't been very concerned about this," says Adele Stone, a shareholder at Fort Lauderdale, FL-based law firm Atkinson, Diner, Stone, Mankuta & Ploucha, P.A.
Stone participated in a webcast sponsored by The Daily Business Review and the NAIOP South Florida Chapter titled "Ch-ch-changes in Commercial Lease Negotiations--Legal and Insurance Issues Affecting Landlords and Tenants in these Challenging Times." The webcast, which was moderated by Stuart Hodes, executive director of NAIOP South Florida, also included Anita Byer, president and CEO of Setnor Byer Insurance & Risk and The Human Equation Inc. A replay of the webcast can be found here.
Stone notes that tenants are very aware of the troubles that commercial real estate owners face today, primarily because they too have been negatively impacted by the recession and credit crunch. They're beginning to worry about things they've never thought about before--whether their landlords are in financial trouble or financially vulnerable to foreclosure.
"It used to be that landlords asked tenants for financial records," Stone says. "Today, tenants are asking landlords for proof of solvency."
Tenants have heard horror stories about lenders foreclosing on buildings and forcing tenants to vacate their space. Stone says most leases include subordination provisions, which usually mean that a lease is subordinate to a deed of trust granted by the landlord. In the event of foreclosure, the lease is generally terminated--unless there is a non-disturbance agreement added to the lease.
Known as a subordination and non-disturbance agreement, or SNDA, the provision essentially says that a tenant will remain a tenant in the building regardless of whether a foreclosure occurs, as long as the tenant is not in default.
That's why tenants are increasingly asking landlords to add non-disturbance provisions to their leases. But, landlords aren't in the driver's seat when it comes to a SNDA.
While it's easy to ignore the silent third party to the lease--the lender--in most situations, it's up to the lender whether tenants are given a SNDA. Most lenders don't like to do so, and landlords don't even like to approach lenders about giving a tenant a SNDA. Perhaps, most importantly, tenants don't know that they should push for a SNDA.
"This can be a critical provision," Stone says. "Tenants should ask for it even if they might not get it."
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