Illinois Subordination, Non-Disturbance, and Attornment Agreement (SODA) is a legal document that governs the relationship between a commercial property tenant, a landlord, and a lender in the context of a commercial loan. This agreement ensures that in the event of default or foreclosure on the commercial loan, the rights and interests of the tenant are protected. In Illinois, there are primarily two types of Subordination, Non-Disturbance, and Attornment Agreements regarding Commercial Loans: 1. Subordination and Non-Disturbance Agreement (SODA): This type of agreement establishes the priority of interests between the lender and tenant regarding the leased commercial property. It generally includes provisions that subordinate the tenant's rights to the lender's mortgage or deed of trust on the property. This means that if the tenant defaults on the lease, the lender has the right to terminate the lease and evict the tenant. However, the tenant's rights are protected by the non-disturbance provision, which ensures that as long as the tenant is not in default, the lender will not disturb their rights to occupy the premises. 2. Subordination, Non-Disturbance, and Attornment Agreement (SODA): This agreement adds a provision, known as Attornment, to the SODA. Attornment refers to the tenant's acknowledgment and consent to recognize a new owner or lender if the property is sold or transferred. This provision makes the tenant legally obligated to continue paying rent to the new owner or lender, even if there is a change in ownership or in the event of a foreclosure. In Illinois, it is important for tenants to carefully review and negotiate the terms of an SODA before signing a commercial lease. Key considerations include the tenant's rights in case of default by the landlord, the lender's rights in the event of foreclosure, the process for obtaining estoppel certificates, rent payment obligations, and notice requirements. In summary, an Illinois Subordination, Non-Disturbance, and Attornment Agreement (SODA) is a crucial document that protects the interests of both tenant and lender in a commercial property lease. It establishes the priority of interests, ensures the tenant's rights are not disturbed as long as they fulfill their obligations, and obligates the tenant to recognize and continue making rent payments to new owners or lenders if there is a change in property ownership. Close attention to the terms of the SODA is essential for all parties involved to mitigate potential risks and disputes.
Illinois Subordination, Non-Disturbance, and Attornment Agreement of a Lease regarding a Commercial Loan
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A nondisturbance clause is a provision in a mortgage contract that ensures that a rental agreement between the tenant and the landlord will continue under any circumstances. This is done primarily to protect the renter from eviction by the mortgagor if the property is foreclosed upon by the lender.
A rent escalation clause is a common provision in commercial lease agreements that allows for periodic rent increases over the lease term. The purpose of the clause is to adjust the rental rate to account for changes in market conditions, inflation, and the cost of living over time.
The attornment clause requires tenants to acknowledge any new owner of the property as the landlord.
Use Clauses This clause defines how the tenant can and can't use the property they're leasing. The use clause may be very specific, so it's important that you read its terms carefully.
The primary effect of an SNDA is that the tenant agrees to subordinate its lease to the mortgage in exchange for the lender agreeing not to disturb the tenant if the lender forecloses its superior security interest in the real property.
What is Subordination? Subordination is putting something in a lower position or rank. Therefore, a subordination agreement puts the lease below the mortgage loan in priority. Mortgage lenders want the leases to be subordinate to the mortgage. That way, the mortgage loan is paid first if there is a foreclosure.
A nondisturbance clause is a provision in a mortgage contract that ensures that a rental agreement between the tenant and the landlord will continue under any circumstances. This is done primarily to protect the renter from eviction by the mortgagor if the property is foreclosed upon by the lender.