By Jones Osborn II

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

Or will you?

Unfortunately, many tenants neglect to get 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 wiped out.

A similar situation occurs where 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. It's 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 be 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 (and ground lessor if there is one). If you don't, you may be placing your lease at the mercy of the project's lender or ground lessor.