the darnage will not be repaired for a significant period of time. It is critically important that the insurance provisions of the leases are compatible with the casualty and condernnation provisions of the loan docurnents. The situation gets interesting when the Tenant Estoppel Certificate and Subordination, Nondisturbance and Attornment Agreement (SNDA) enter the debate. Hopefully, in an acquisition context, the seller and buyer have pre-negotiated an acceptable form of Tenant Estoppel Certificate. The lender will identify obligations it is not willing to assurne and the SNDA is the vehicle through which the lender is absolved from liability for those obligations if it forecloses. Most leases contain subordination clauses, but some may be too broadly drafted for the first priority lender, or the lender may sirnply want its own SNDA form provisions. With each important tenant, it is prudent to enter into an SNDA that contractually guarantees that the tenant's lease will remain effective after a foreclosure by the lender. Without an SNDA, it can be difficult to predict whether, after a foreclosure, the lender or other purchaser of the subject property will be entitled to enforce the lease. If the review of a lease discloses problems that are so severe that a carefully drafted Tenant Estoppel Certificate alone will not fix them, the lender's lawyer should recommend that the borrower (the landlord) resolve all of the issues by use of either an SNDA or an amendrnent to the lease. The extent to which a lender can obtain the agreement of a tenant to resolve the ambiguities and problems caused by the lease depends upon the bargaining power of the lender, landlord and tenant. Alternatively, the lender and the tenant can agree, in an SNDA or in a separate contract, that certain obligations and promises of the original landlord will not be binding upon the lender if it forecloses on the property. Lenders' lawyers may require representations and warranties from the borrower concerning the performance of its obligations as landlord, including the borrower's confirmation that it is not in default in its obligations as landlord under the leases and the borrower's express promises to perform its obligations as landlord under the leases.
The views expressed in this article are those of the author.
Nelson F. Migdal is a partner at the Washington, DC-based law firm of Holland & Knight LLP. He may be contacted at nelson.migdal@hklaw.com
Carole L. Peehi, senior counsel in the firm's Chicago office, contributed to this article. |
