How to Stay Ahead in Second Place

January 4, 2011

Under common law, if a tenant has notice of a lender’s prior security, the lender will not be bound by the tenant’s lease and, when enforcing its security, may terminate the lease and evict. How are tenants to protect themselves? Non-disturbance agreements can help.  From a tenant’s perspective, non-disturbance agreements give the tenant security of tenure during the term so long as the tenant is not in default. From a lender’s perspective, non-disturbance agreements can ensure future rent in the event the lender goes into possession. Sound easy? There’s more. Non-disturbance agreements require careful consideration. Poorly drafted non-disturbance agreements where a lender simply agrees not to disturb a tenant’s possession of the premises will not necessarily require the lender to perform all the landlord’s obligations under the lease but only those obligations that “run with the land”. However, when a lender covenants to be bound by the terms and provisions of a lease, that lender, should it go into possession, will be required to assume all of the obligations of the landlord. As demonstrated in the TDL Group case, this small point can carry a heavy price tag.

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