A Non-Disturbance Clause is a provision commonly found in real estate agreements, particularly in commercial leases and financing arrangements. It aims to protect tenants and other parties with an interest in the property in the event of certain changes in ownership or financial issues involving the landlord or property owner.
Here’s how it typically works:
- Protection of Tenants: If a property owner defaults on their mortgage and the lender forecloses on the property, a Non-Disturbance Clause ensures that tenants with leases can continue to occupy the property under the terms of their lease, even if the property changes hands. This protects tenants from eviction by new owners seeking to void existing leases.
- Lenders and New Owners: The clause can also be beneficial for lenders and new owners. By agreeing not to disturb existing leases, the new owner can retain tenants and the income stream they provide, assuming the leases are favorable and the tenants are in good standing.
- Subordination and Attornment: A Non-Disturbance Clause is often paired with agreements of subordination and attornment. Subordination means that the tenant’s rights are ranked below the rights of the lender, so the lender’s interest is protected. Attornment means that the tenant agrees to recognize a new owner as their landlord if the property is sold or foreclosed.
The combination of these agreements creates a balanced arrangement that provides security for tenants while also protecting the interests of lenders and new owners. For real estate investments, the clause is often seen as a stabilizing element that can make properties with existing tenants more attractive to potential buyers and financiers.