What Is a Nondisturbance Clause
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 nondisturbance clause ensures that a tenant will not be evicted in the event that the landlord goes bankrupt.
- A nondisturbance clause in a mortgage guarantees than a tenant will not be evicted from a property that has been foreclosed on by a lender, or due to some other circumstance.
- Such a clause may apply to either a residential or commercial leaseholder and mortgagee.
- A nondisturbance clause often is written in conjunction with an attornment clause, whereby the leaseholder or tenant will automatically recognize the new owner of the property as landlord.
Understanding Nondisturbance Clauses
A nondisturbance clause can also come into play if the property the tenant occupies is sold by the owner rather than a foreclosure or bankruptcy. The tenant can retain the rights under the clause as long as they are not in default. Such a clause may be bundled with other terms and agreements that the tenant signs when they agree to occupy a space, especially with a commercial property.
For instance, a nondisturbance clause is often included within a subordination, nondisturbance, and attornment agreement (SNDA). The subordination clause would make a tenants leasehold junior interest junior to the mortgage interest of a lender. This would let the landlord seek financing with the property is collateral after the tenant signed agreements to occupy space there. The attornment clause is a guarantee that the tenant will recognize the new owner of the property as the landlord and continue making rental payments to them for the duration of the rental term when the property changes hands.
Why Business Tenants Might Demand a Nondisturbance Clause
As a benefit for business tenants in a commercial properties, a nondisturbance clause can help abate the possibility of a shakeup of their costs by ensuring that their rental terms will be honored if there is a change in ownership on the property. This could also protect a business tenant who invests in renovations to the space they occupy in the event that the landlord loses the property in foreclosure or bankruptcy and the tenant is named as a defendant.
Without such a clause, the tenant might lose use of the space as well as their investment in the renovations made to further their business at that property. Some lenders may try to limit the obligations afforded in a nondisturbance clause to simply allowing the tenant to remain in the space at the agreed upon terms of the lease.
A nondisturbance clause has a different application for mineral rights. In this case, the clause provides that the mineral extraction process does not interfere with any surface development of the land. For example, an oil company that drills wells on a piece of property may not interfere with the construction of a building or other developments on that property.