A non-disturbance agreement (NDA) is a legal contract signed between three parties- the landlord, the tenant, and the tenant’s lender. The purpose of this agreement is to ensure that the tenant’s lease remains undisturbed even if the property is foreclosed or sold to a new owner.
In simpler terms, an NDA is a guarantee to the tenant that they can continue their business without any interference from the landlord’s or lender’s change in ownership.
Why is an NDA Important?
Let’s say a business owner signs a lease with a landlord for a commercial property. The lease includes a minimum of three years with the option to renew for another three years. The business owner spends a considerable amount of money on renovations and equipment necessary for their operation and starts the business.
However, two years into the lease, the landlord gets foreclosed, and the bank takes over the property. The bank then sells the property to a new owner who has no idea about the existing lease, and the tenant now risks losing their business and all the money invested.
To avoid such a scenario, an NDA is put in place, protecting the tenant’s right to continue their business undisturbed. This guarantees that if the property is foreclosed or sold, the new owner is legally required to honor the tenant’s lease.
An NDA also gives the tenant the right to terminate the lease if the new owner or the landlord breaches the agreement. This provides tremendous security and peace of mind for the business owner, knowing that their investment is safe.
What Does an NDA Include?
An NDA typically includes the following elements:
1. Parties involved: The names and addresses of the landlord, the tenant, and the tenant’s lender.
2. Property description: A detailed description of the property, including the address and any other vital information.
3. Lease agreement: The terms and conditions of the lease agreement, including the lease’s start and end dates and renewal options.
4. Non-disturbance clause: A statement that the tenant’s lease will not be disturbed or terminated if the property changes ownership.
5. Termination clause: A statement that the tenant has the right to terminate the lease if the new owner breaches the agreement.
6. Signatures: The signatures of all involved parties.
In conclusion, an NDA is a crucial document that ensures the tenant’s lease remains undisturbed even when the property changes ownership. It provides peace of mind to business owners and protects their investment. As such, it is essential to work with an experienced attorney to draft this agreement.
