If you own commercial rental property, your bank or other lender may request--or demand that you include a subordination clause in your leases.
A subordination clause puts them at risk of losing their business location which can be critical to their operations and customer relationships through no fault of their own.
John: So I need to ask that your Mortgage Deed include a standard Subordination Clause
, whereby you agree to put the lien of your Mortgage behind that of the construction lender.
The issue of a subordination clause has the potential to significantly influence the land-lease rate.
Unless a ground lease has a subordination clause, the landlord would receive a windfall if the tenant defaulted on the land lease.
This article examines the typical shopping center subordination clause and some common problems (and some suggested solutions) when a tenant, especially an anchor tenant negotiates a "so-called" subordination and non-disturbance agreement with a landlord's mortgagee.
In the past, landlords were in such a dominant position that most tenants (other than the strongest of anchor tenants) were forced to accept the standard subordination clause, and until recently most tenants did not think much about the possibility of a mortgage foreclosure on the shopping center.