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A Common Mistake Can Cost You Your Lease

You've signed the lease and moved into your new space. You have received an excellent deal, of course, but the move was still expensive. Upgraded tenant improvements, moving expenses, lost productivity-- all these items take their toll in time, money, and energy. At least you will not have to move again for ten years.

Or will you?

Unfortunately, many tenants neglect to obtain the one thing that will protect their lease if their landlord gets into financial trouble: a non-disturbance and attornment agreement. This is a short agreement signed by the project's lender saying that the lender will honor your lease if it forecloses its mortgage. This is the "non-disturbance" part of the agreement. The tenant agrees, in return, to accept the lender as the landlord and to pay the rent directly to him. This is the "attornment" part of the agreement.

Without such an agreement, the lender does not have to honor your lease if he forecloses. This is because the lender's encumbrance existed prior to your lease, and when the lender forecloses, all junior interests, including your lease, are obliterated.

A similar situation occurs when the project is on a long-term ground lease. If the ground lease is terminated, your lease also terminates unless you have a non-disturbance agreement.
After a foreclosure or ground lease termination occurs, the lender or lessor may offer you a new lease to let you stay on the same terms. Or, he may demand more rent, or may even force you to leave if he has other plans for the space. The choice is up to him, and he can be expected to act for his own advantage, not yours.

The Lesson
Therefore, if you are leasing space--whether it is an office, store, warehouse, or industrial space--always require the landlord to deliver to you a non-disturbance and attornment agreement executed by the project's lender or ground lessor.

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