(Published in the Idaho Business Review, December 2009)

Thinking of relocating your business?  Have you found a great new location and you are anxious to make a deal on a lease?  Before you start packing up, take a moment to image this scenario.  After more effort than you could have ever imagined at the start of the process, you have signed the lease and moved your business into a new space. 

  Given the current economic conditions you are pleased by the deal that you negotiated, but the relocation of your business was still expensive.  Upgraded tenant improvements, moving expenses, lost productivity - all these factors have taken their toll on you and your business in terms of time, money and energy.  You take some comfort in the fact that you won't have to move again for the next ten years.  But, how sure are you about that?

  Unfortunately, many tenants fail to obtain a very important agreement that will protect the tenant's lease if the tenant's landlord gets into financial trouble - a non-disturbance and attornment agreement (frequently referred to as an "NDA").  Generally, this is an agreement entered into with the project's lender, which provides that the lender will honor the tenant's lease in the event the lender forecloses its deed of trust or mortgage.  This is the "non-disturbance" part of the agreement.  In return, the tenant agrees to accept the lender as the tenant's new landlord in the event of foreclosure, and to then pay rent directly to the lender.  This is the "attornment" part of the agreement.

  In the absence of a non-disturbance and attornment agreement, the law does not require the lender to honor the tenant's lease in the event the lender forecloses.  This is because the lender's deed of trust or mortgage existed prior to the tenant's lease, and when the lender forecloses, all junior interests in the real property against which the lender has recorded its deed of trust or mortgage, including the tenant's lease, are eliminated.

  A similar situation occurs when the project is located on real property that is subject to a long-term ground lease.  If the underlying ground lease is terminated, the tenant's lease also terminates, unless the tenant has entered into a non-disturbance and attornment agreement with the ground landlord.

  After a foreclosure or ground lease termination occurs, the lender or ground landlord might offer the tenant a new lease, and allow the tenant to stay in its leased space on the same terms that had been in the now-eliminated lease.  Alternatively, in the absence of a non-disturbance and attornment agreement, the lender or ground landlord could demand more rent or decide to force the tenant to leave (even if the tenant's lease term has not yet expired) if the lender or ground landlord has other plans for the leased space. 

  Without the protections provided to a tenant by a non-disturbance and attornment agreement, the rent escalation and eviction types of decisions are entirely within the control of the lender or ground landlord, who the tenant can expect to act for its own advantage, not for the tenant's advantage.

  Therefore, if you are leasing space - whether it be office, retail, warehouse, or industrial space - always require that your landlord deliver to you a non-disturbance and attornment agreement that has been executed by the project's lender (or by the ground landlord, as the case may be). 

  To avoid as much risk as you can, you should negotiate with your landlord so that the non-disturbance and attornment agreement is delivered to you at the earliest date possible. 

  In addition, make it a condition of your new lease that you be entitled to terminate the lease if the non-disturbance and attornment agreement is not executed and delivered within a timeframe that is acceptable to you - which should be before your relocation schedule dictates that you start to spend significant time, money and energy on tenant improvements and moving expenses, and before you terminate the lease on the space you presently occupy from which you desire to relocate.

  Kimbal Gowland is a partner with the law firm Meuleman Mollerup LLP, representing clients with legal concerns in real property matters including purchases, sales, leasing, lending, title and development issues, general business matters, and other commercial matters.  He can be contacted at 208.342.6066 or by email at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .  More information is available online at www.lawidaho.com.