As a tenant, it`s important to understand the language in your lease agreement, particularly when it comes to subordination clauses. Subordination is a legal term that refers to the position of a lien or mortgage on a property. In other words, it determines the priority of creditors in the event of a default.
In a lease agreement, subordination clauses are included to protect the landlord`s interests. This clause specifies that the tenant`s leasehold interest is subordinate to any existing or future mortgages or liens on the property. Essentially, this means that the rights of the landlord`s lenders take precedence over the tenant`s rights in case of a foreclosure or other legal action.
Subordination clauses can also be used to protect the landlord in case they decide to refinance the property. If the landlord decides to take out a new mortgage or loan, the subordination clause ensures that the new lender`s interest takes priority over the tenant`s leasehold interest.
As a tenant, it`s essential to carefully review the subordination clause in your lease agreement and understand its implications. In some cases, a subordination clause can limit your ability to obtain financing or negotiate lease terms. For example, if the landlord decides to sell the property, the new owner may not want to assume the existing lease and may require the tenant to renegotiate or pay a higher rent.
To protect your interests, you may want to negotiate certain exceptions to the subordination clause. For example, you could request that the clause only applies to future mortgages or liens and doesn`t affect your rights under the current lease. Additionally, you may want to negotiate an attornment clause, which requires the landlord`s lender to recognize your leasehold interest in the event of a foreclosure.
In conclusion, subordination clauses are an essential part of a lease agreement, but they can have significant implications for tenants. As a tenant, it`s vital to review and understand the subordination clause and negotiate appropriate exceptions to protect your interests. Working with an experienced attorney or real estate professional can help ensure that you fully understand the terms of your lease agreement and make informed decisions about your tenancy.