Shareholder Gary M. Kaleita discusses different types of automatic subordination clauses that landlords should consider when negotiating a lease with a tenant.
Most leases contain what are called automatic subordination clauses, pursuant to which the tenant agrees that the lease is subordinate to any mortgages granted by the landlord, whether they are already in existence when the lease is signed, or granted by the landlord in the future.
Such a clause can be made more complex by including other provisions, such as an agreement by the landlord that the tenant’s subordination of the lease is conditioned upon the landlord’s lender, as mortgage-holder, agreeing not to foreclose on the tenant and thereby disturb the tenant’s possession as long as the tenant is not in default of the lease (typically called a non-disturbance clause). Another variation is to include a provision by which the tenant agrees to recognize the lender as the new landlord if it forecloses the mortgage and becomes the owner of the leased premises (typically called an attornment clause).
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