Question regarding SUBORDINATION

11 Replies

Hello,

My name is Jason and I am a fairly new landlord (about 3 years now) and I just picked up my third property. I found a tenant, did all the credit/background checks and things were looking good. I sent my prospective tenant a sample of the lease agreement and he sent back a few change requests which was very minor and I have no issues with making those changes.

However, there is a change he wants to add to the subordination provision which I am not sure I want to make. Here is what is says in my lease agreement.

SUBORDINATION:
This Lease Agreement is subject and subordinate to any mortgage, financing, loans, deed of trust, or right to possession with regards to the building or land that the Landlord is obligated to now or in the future including existing and future financing, and/or loans or liens on the building and land.

What the Tenant wants to add:

It is further understood that, it’s sole election, Landlord may enter into any financing arrangement involving the subject property it deems appropriate. However Landlord agrees that any such financing agreement would not add, delete, or modify any terms under the Lease without the written consent of Tenant

I am not sure if I am comfortable with this addition. Reading it leads me to believe that it would require a tenant’s written approval and grant a tenant power to affect financial decisions regarding my property. Am I reading this correctly?


I am new to this forum and just looking for advise. I apologize if this topic was covered already in another post.

Thank You,
Jason

FYI: The property and I are in California if that makes any difference.

tell the guy to pound sand , Tenants do not dictate lease provisions . 

He's just saying you can do any financing you want, as long as it doesn't change the terms of your lease.  Not sure why that subordination is even in your lease.  As it is is written, it does say some lender can demand changes to his lease, and he would be subject to it without having to agree.....I see how it could raise some unnecessary concern on the tenant's part.

as Wayne stated your lease should Make NO mention to a your financing.

your tenant has above average real estate knowledge.. probably more knowledge than most the folks on this site who are not RE professionals  LOL..

this tenant could be an issue if you do not follow the letter of the law etc..

Just to clarify. I didn’t write the lease. It was a lease I found when I first started, using a form you fill out online and is supposed to be state specific. I didn’t add or delete anything so I was assuming the provision was there for a reason.

Jason,

Surbordination Agreements are usually for the benefit of the lender and are more appropriate for commercial properties and/or longer term leased properties.  The only reason why there would be one in the lease is to avoid having to sign the Bank's surbordination agreements every time you refinance the property.  Your tenant is actually adding a "non-disturbance" clause which is reasonable; however, it does change a legal document from its original form.  Personally, I would consider the following:

- Compare my lease to an updated lease agreement, for my specific state, obtained from the local REA office.

- Have attorney review change (would do this if I could apply to several future leases).

- Consider how bad I want this tenant is and how long the lease is.  If I was a great tenant and had to sign a long term lease, I would also want some assurances.

- Not accept the change and look for another tenant

Hope this helps,

Jesse Valencia

Tenants don't write the lease, period. Any tenant that thinks they can is probably a tenant you don't want to have. If you make any modifications to the prewritten lease you found, you should consult with a lawyer...if the tenant is requesting it, then the tenant pays for the lawyer.

Seems easier to just find a different tenant. If he's nit picking about things like that now, just wait until he gets in there.

With most people you could include a clause about how they have to buy you beer every friday and may only enter the house while wearing a pink dress - and they would still sign it. They wouldn't even read it.

I would suggest that rather than comply with your tenants request you remove the Subordination clause from your lease entirely. It is not required as part of a tenant lease agreement.

When ever possible this is the approach I generally take with difficult tenants, rather than comply with requests I modify my lease in such a way as to remove tenant options without disadvantaging myself.

If this guy still wants to be a tenant I would only sign a M2M with him. In this case he will probably go away which may be best for you in the end.

I have a different take on the tenant's request.  In my experience if someone reads a contract as closely as this and makes thoughtful suggestions like this one, that means they intend to perform under the contract.  I would simply strike the subordination clause and move on or agree to his request.  If you intend to refinance, accept his request.

@Jason Medina I didn’t write the lease. It was a lease I found when I first started, using a form you fill out online and is supposed to be state specific. I didn’t add or delete anything so I was assuming the provision was there for a reason.

I would see what else you lease is lacking and check with your local state laws, If terms in the lease don't apply to you then why have them in the lease, If you don't understand a clause, get it figured out.

You have a big responsibility to yourself to have the proper forms to protect you and your property. Check with an attorney or maybe someone from California in your local area has a good recommendation of a lease honored by the court system in your jurisdiction.  In Minnesota we have Housing Association that has a very well drafted lease that's available to all for use in rentals, you can add addendum's and make it more suitable for needs but it stands up in court well. 

I wouldn't sign this lease with this applicant or anyone else until you figure out the rest of the lease pertains to that your trying to use.

Thank you everyone for all your input. I believe the root of my tenant's concern is a result of what happened to him at his last place. The landlord sold the home 6 months into his lease so I think he is trying to avoid something like this from happening again. While I understand he wants to protect his interest, I felt adding wording into the lease that would require a landlord to get written approval from a tenant when making financial decisions regarding the property was not in my best interest.

I do agree with what some have said that he might end up being a nightmare tenant but I also sort of respect someone that actually reads the lease before signing and speaks up for his rights (which might still make him a nightmare tenant in the future).

I did a little more research on this issue last night and I believe adding a non-disturbance clause to protect the tenant's rights under the lease without giving the tenant power over financial decisions is the right way to go.

Thinking about adding this line:
Tenant's rights under this Lease shall not be disturbed so long as Tenant is not in default under this Lease. In the event of sale or foreclosure, Tenant recognizes the subsequent purchaser as the lessor under this Lease.

Now I just need to decide if I still want to rent to him.

The worst tenants in the world are the ones that tell their landlord "I know my rights".

This guy is dangerously close to this line. Tenants have no rights regarding a landlords lease aside from either signing or not signing. You have no obligation to appease this tenant and may get your self in a corner when he decides to turn on you. I would be temped to tell him to rub salt but could suggest telling him you will not change your lease and it is his choice to apply or not.

Tenants like this usually become a royal pita down the road when they have a lease and by doing so control your property.

Good, bad or indifferent I would never give any tenant the privilege of a term lease

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