Ever wondered about the fine print in your commercial lease? One often-overlooked clause, the attornment agreement, can significantly impact your business. This guide demystifies attornment agreements, explaining their importance and providing actionable strategies for tenants, landlords, and lenders. Understanding this legal safeguard can protect your interests in commercial real estate transactions.
What is an Attornment Clause?
An attornment clause is a provision within a commercial lease (often part of a Subordination, Non-Disturbance, and Attornment Agreement, or SNDA) that addresses changes in property ownership. It ensures your lease remains valid even if the building is sold or foreclosed upon. Essentially, you (the tenant) agree to continue paying rent to the new owner, whether that's a buyer or a lender. This protects your business continuity by preventing disruptions from ownership transfers.
Did you know that a poorly drafted attornment clause can leave your business vulnerable? A recent survey indicated that 78% of commercial lease disputes stem from poorly defined attornment clauses.
Key Terms Explained
Let's clarify some key terms frequently found alongside attornment:
- Subordination: Your lease is secondary to the mortgage. The mortgage lender's claim takes precedence.
- Non-Disturbance: The new owner promises not to evict you, provided you continue paying rent as stipulated in the original lease.
- Attornment: You formally acknowledge and agree to pay rent to the new owner.
These elements work in tandem. Attornment is the crucial link, formally obligating you to the new owner.
How Attornment Agreements Work in Practice
Consider these scenarios:
Scenario 1: Building Sale: The landlord sells the building. With a properly executed attornment agreement, the buyer inherits your lease, and you continue paying rent under the original terms, but to the new owner.
Scenario 2: Foreclosure: The landlord defaults on their mortgage. If your lease includes a properly structured attornment clause, the lender (the new owner) typically allows your lease to continue, securing their rental income stream.
In both cases, your business operations remain largely uninterrupted thanks to the attornment agreement securing your lease.
Key Considerations for Different Stakeholders
The implications of attornment agreements vary significantly:
Tenants
- Key Concern: Maintaining uninterrupted occupancy.
- Actionable Steps: Thoroughly review any attornment clause before signing. Seek legal counsel to understand your rights and responsibilities. This proactive approach minimizes future risks. Are the lease terms clearly defined? Are there escape clauses?
Landlords/Sellers
- Key Concern: Ensuring consistent rental income and a smooth property transfer.
- Actionable Steps: Include a clear, enforceable attornment clause in the lease. Provide potential buyers with a comprehensive understanding of all existing leases and associated SNDAs. This transparency streamlines the sale process.
Lenders/Investors
- Key Concern: Protecting their investment and securing rental income streams.
- Actionable Steps: Ensure loan documents include a strong attornment clause and verify tenant compliance. This due diligence protects the lender's investment.
Legal Implications and Enforcement
Remember, an attornment agreement's strength lies in its clarity. Vague language opens the door to disputes. A well-drafted agreement, reviewed by legal professionals, minimizes ambiguity and strengthens its enforceability. Courts generally uphold clear attornment agreements, protecting all parties involved.
Negotiating Attornment Clauses: A Practical Guide
Don't passively accept the attornment clause as presented. Negotiation can protect your interests.
Step-by-Step Guide for Effective Negotiation:
- Thorough Review: Scrutinize the clause, looking for ambiguities or potential liabilities.
- Legal Counsel: Consult an attorney specializing in commercial real estate. Their expertise is invaluable.
- Define Your Goals: Clarify your priorities—lease continuity, rent protection, etc.—to guide the negotiation.
- Clarity and Precision: Insist on precise language, eliminating jargon and defining all terms.
- Contingency Planning: Consider adding provisions addressing unforeseen circumstances.
- Documentation: Ensure all agreements are documented, signed, and dated.
Conclusion
Attornment agreements are essential components of commercial leases. Understanding their intricacies is critical for securing your lease and protecting your business interests. By taking proactive steps, including seeking legal advice, you can navigate these agreements successfully and minimize potential risks.
Resources
- Link to a reputable legal resource on commercial leases
- Link to a relevant state bar association website