What follows is our general observations and opinions, not legal advice and not a definitive statement of California law. Every lease and every loan document is different, and what is written here may not match your specific facts.
Your landlord’s building is in foreclosure, or you have just been asked to sign a subordination agreement, and you want to know what actually happens to your lease if the lender ends up owning the building. Our short answer is that it depends almost entirely on one piece of paper you may not have: a subordination, non-disturbance and attornment agreement, commonly called an SNDA. Without one, a lease signed after the mortgage was recorded is generally subordinate to that mortgage, and a foreclosing lender can, in our reading, elect to terminate it. With a properly drafted SNDA, your possession is generally protected even though the building changes hands.
That single distinction is worth understanding before you sign anything a landlord’s lender asks you to sign, and worth checking for before you take a lease renewal for granted in an older, leveraged building.
What “Subordination” Actually Means
Most commercial leases contain a subordination clause, and most lenders require one as a condition of financing. Subordination means your leasehold interest ranks behind the lender’s deed of trust in priority. Practically, our reading is that this determines what happens if the loan goes into default: the party with senior priority — the lender — generally gets to decide whether a junior interest, including your lease, survives a foreclosure sale.
A lease signed and recorded before the mortgage was recorded is typically senior to it, and a foreclosing lender usually cannot wipe it out. A lease signed after the mortgage — which describes the overwhelming majority of commercial tenancies, since the building was financed before you ever looked at the space — is subordinate by default, unless the parties agree otherwise.
Attornment: The Other Half of the Trade
Attornment is the tenant’s promise to recognize the foreclosure-sale purchaser (often the lender itself, or a new buyer) as the new landlord, and to keep paying rent and performing under the lease as if nothing had changed. Lenders want this because it means they do not have to renegotiate a base of paying tenants from scratch after a foreclosure. In our reading, subordination and attornment are usually presented as a package: you agree to subordinate your lease, and you agree to attorn to whoever ends up owning the building, in exchange for the lender’s promise not to disturb your possession as long as you are not in default.
That promise — non-disturbance — is the part that actually protects you, and it is also the part that lenders sometimes try to leave out or narrow. An agreement that only covers subordination and attornment, without a non-disturbance commitment, gives the tenant obligations without the corresponding protection.
What Happens Without an SNDA
If there is no SNDA, and your lease is subordinate to the mortgage as most are by default, our reading is that a foreclosing lender generally has the option to terminate leases that came after its mortgage. Some lenders, particularly for a well-occupied, income-producing building, will choose not to exercise that option, because evicting paying tenants after taking over a building rarely makes business sense. But “usually will not” is not the same as “cannot,” and a tenant who has invested heavily in improvements, or who depends on that specific location, is carrying real risk by relying on a lender’s business judgment rather than a contractual right.
We would not tell a client to assume the lender will simply let things continue. The SNDA is what converts that assumption into an enforceable right.
What to Actually Negotiate
An SNDA is negotiable, and the standard form a lender’s counsel presents is written for the lender. Points worth pushing on include:
- Confirming the non-disturbance obligation is unconditional as long as the tenant is not in default — not qualified by vague conditions the lender controls.
- Limiting what a successor landlord can be held to: many forms say the new owner is not bound by prepaid rent, security deposits it never actually received, or landlord defaults that predate its ownership — worth knowing, and worth negotiating around where you can.
- Preserving offset and self-help rights the original lease gave you, since some SNDA forms quietly strip these out.
- Requiring the lender to recognize any renewal options, expansion rights, or purchase rights already in the lease.
- Getting the SNDA recorded, or at least confirming it will be honored by any later purchaser at the foreclosure sale, not just the original lender.
Why This Matters More on Older Los Angeles Commercial Stock
A meaningful share of LA’s older commercial buildings — retail strips, small multi-tenant office buildings, converted industrial space — carry financing placed years before current tenants signed, and many of those loans were never accompanied by an SNDA at lease signing, because the tenant’s broker never asked for one and the landlord had no reason to volunteer it. Rising interest rates and refinancing pressure over the past several years have made foreclosure and loan workouts a live issue for some of this stock in a way it was not a decade ago. A tenant who has never thought about this exposure is often the same tenant who has sunk real money into tenant improvements it cannot easily walk away from.
What This Means for You
If you are negotiating a new lease or a renewal, ask for an SNDA as part of the deal rather than waiting until there is a problem. If you are already in a lease and are not sure whether one exists, it is worth finding out — the original loan documents, if you can get access to them or to a title report, will usually show whether the mortgage predates or postdates your lease. If your landlord’s building is already in foreclosure and you have no SNDA, the timeline for protecting your position is often shorter than it feels, and the analysis depends heavily on the loan documents and the foreclosure process itself.
We review commercial leases and SNDAs on an hourly or flat-fee basis — this is not contingency work. If your landlord’s lender is asking you to sign something, or your building’s financing is already in trouble, call us before you sign at (310) 556-9692.
Related reading: for the negotiation that happens before a lease is even drafted, see what to negotiate in a letter of intent. If a personal guarantee is part of your lease package, see what a personal guarantee on a commercial lease actually means. For what happens at the end of your term, see how renewal options and rent resets work. For the full set of commercial lease resources, visit our lease negotiations page.
This article reflects our general views on a recurring commercial leasing issue and is not a substitute for advice about your specific lease and loan documents. Reading it does not create an attorney-client relationship between you and this firm.
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