SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT
AGREEMENTS
By Morton P. Fisher, Jr.
Ballard Spahr Andrews & Ingersoll, LLP
Baltimore, Maryland
I.
INTRODUCTION
Perhaps no issue over the past year has resulted in more consternation and negotiation
than subordination, non-disturbance and attornment agreements. These multi-party
agreements between a landlord, tenant and the landlord's lender define the important
relationship between the lender and the tenant in the event of a default by the landlord
and foreclosure or other takeover by the lender. Most significantly, the execution of
subordination, non-disturbance and attornment agreements with each of the tenants is
likely to be a condition of the lender's entering into a loan transaction, including a
refinancing.
II.
GENERAL LEGAL BACKGROUND
The genesis of the subordination, non-disturbance and attornment agreement is
generally based upon state law principles that would otherwise control in the event of a
default and foreclosure. The law varies greatly from jurisdiction to jurisdiction. In some
jurisdictions, in the absence of such an agreement, the tenant's rights would automatically
be cut off in a foreclosure. Many states have adopted the so-called “pick and choose” rule
that permits the lender to take title subject to certain leases and to terminate others in the
event of a foreclosure. In other states, occupancy by the tenant may give the tenant
certain rights, even in the absence of such an agreement. However, even in these States,
the affirmative obligations of the foreclosing lender are unclear and the scope of tenant
rights have become increasingly clouded, particularly in light of recent bankruptcy court
decisions.
Given that many lenders make loans in a number of states and are involved in
multi-state loan transactions, the lender is customarily unwilling to rely upon the
uncertainty of case law in various states to define its rights vis-a-vis the tenant in the
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event of a foreclosure. Concomitantly, tenants with any bargaining power will not wish to
take the risk of losing the right to possession, the value of the lease, and very often the
value of tenant improvements in the event of a default by the landlord and a foreclosure.
It is for this reason that the parties will generally wish to execute an agreement of
subordination, non-disturbance and attornment which will define the rights of the parties
and which is likely to be controlling notwithstanding the legal principles which would
otherwise apply in the absence of such an agreement
III.
AGREEMENTS BETWEEN LANDLORDS AND TENANTS REGARDING
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
In most major lease transactions, the landlord, in order to conform to the lender's
requirements, will insist that the tenant subordinate its interest to the current, and any
future, lender and will require that the tenant agree to attorn to the lender in the event that
the lender steps into the landlord's shoes. The tenant, given any bargaining position, will
generally agree to be placed in a subordinate position, but only if it is assured that the
tenant will not be disturbed in the event of a default by the landlord and foreclosure.
It is not unusual for the landlord to agree to use prudent efforts, or even best
efforts, to obtain a non-disturbance agreement from the landlord's lender. It would not
customarily be prudent for the landlord to absolutely agree to obtain non-disturbance,
since in some instances the lender may not wish to grant non-disturbance, at least on
terms which are acceptable to the tenant. In states where a tenant's rights of occupancy
are not clearly recognized in the event of a foreclosure, the tenant will almost always
insist that the current lender enter into a non-disturbance agreement. This will mean that
the tenant's rights will be automatically protected as to the current lender --and in many
States, as to the rights of any future lender which took its interest subject to a tenant's
occupancy, but which did not enter into an agreement of subordination, non-disturbance
and attornment.
Much will depend, as in all cases, on the bargaining parties, and particularly the
amount of money which is to be spent on tenant improvements.
Assuming the customary result — that the lender will agree, in one form or
another, to grant non-disturbance if the tenant agrees that it will subordinate and attorn,
and vice versa, all would seem to be right in the world. However, this is where the kabuki
dance among the three parties is likely to begin.
The notion of a so-called standard form of agreement is an oxymoron in most
instances, but it is clearly a misnomer in the case of agreements of subordination, non2
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disturbance and attornment. These agreements will often be hotly negotiated, again
depending upon the bargaining positions of the respective parties. (An example of a
recently negotiated agreement is attached for discussion purposes.)
IV.
NEGOTIATED PROVISIONS OF THE SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENTS
The principal provisions of the agreements which customarily are negotiated are
as follows:
A.
Notice of Defaults by Tenant to the Lender. Most lenders will require that
the tenant agree to give the lender notice of any landlord default at the same time that the
tenant gives notice of default to the landlord. This is a customary provision and rarely is
there any serious negotiation over the giving of notice by the tenant to the lender.
B.
Additional Rights to Cure. Although notice is customary, frequently a
negotiation will develop as to whether the lender will be given any additional time
periods within which to cure the default. Quite obviously, monetary defaults can be cured
by the simple payment of money. However, it is not such an easy task for a lender to
place itself in the position to be able to take possession of the premises, so as to cure a
non-monetary default. To cure a non-monetary default, customarily, the lender will wish
some period of time (60 days is not uncommon) after the original default notice within
which to cure any non-monetary default. Generally, lenders want a much longer period of
time within which to cure non-monetary defaults, providing the lender proceeds with
diligence to take over the premises in order to cure the default, and thereafter proceeds
with due diligence to cure the default.
Often, the tenant will balk at the amount of additional time which is
requested by the lender. If in one fashion or another the tenant is deprived of its
beneficial use of the premises, the tenant will wish to terminate the lease or pursue other
remedies available to it, regardless of whether or not the lender has been able to take
possession and cure the default.
C.
Terminations. Amendments and Modifications. The lender will almost
always insist that no termination, amendment or modification of the lease will be
effective between the landlord and the tenant without the prior written consent of the
lender. Otherwise, a savvy landlord might well place the lender in an untenable (and
possibly “untenanted”) situation if the loan goes into default. It is not uncustomary for the
tenant to agree that bilateral agreements between the landlord and the tenant for
termination, amendments or modifications will not be binding on the lender. However,
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the careful tenant will wish to preserve its rights under the lease, assuming the lease has
any provisions which would permit amendment, modification or termination. An example
might be an amendment or modification with regard to the takeover of adjoining space,
sublettings and assignments and, most importantly, termination rights if certain events
should occur as set forth in the lease.
D.
Application of Insurance and Condemnation Proceeds. One of the great
battlegrounds in the negotiation will be the tenant's insistence that the lender make
available insurance and condemnation proceeds for restoration of the premises. A tenant
with significant bargaining power will absolutely insist that the proceeds be utilized to
restore its premises. On the other hand, before committing the proceeds to reconstruction
or repair, the lender will wish to assure that the tenant will reopen, remain in possession
and that there will be sufficient time remaining under the term of the lease or an
extension option to make rebuilding viable. Additionally, the lender may well wish to
apply the proceeds to the payment of the loan if there are not sufficient other tenancies to
make the project viable in the event of restoration following a casualty. This is a hotly
negotiated issue.
E.
Obligations of the Lender to the Tenant in Event of a Default or
Foreclosure. Perhaps the most negotiated points in the subordination, non-disturbance
and attornment agreement pertain to the obligations of the lender if its steps into the
shoes of the landlord.
The lender will customarily require that the lender not be liable for any act or
omission of the landlord, that the lender will not be subject to any credits, off-sets or
defenses that the tenant might have against the landlord and that the tenant will not be
entitled to any credit for any pre-paid rent or other obligations.
All of this seems ultimately reasonable from the standpoint of the lender but there
are substantial risks to the tenant in giving up all of these rights. For example, perhaps the
tenant is entitled under the terms of the lease to a credit or offset under certain prescribed
circumstances which would inhibit the tenant's ability to exercise its right under the lease.
Perhaps the most hotly debated point is whether or not the lender will be
responsible for the payment of tenant allowances and the costs of future improvements
for option space, right of first offer or first refusal space, or other similar obligations of
the landlord. Customarily lenders simply will not put themselves in the position where
they are obligated for these payments, although the lender might be required to make
similar expenditures for a new tenant if the lender were to become the owner of the
property.
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F.
Exculpation. The final point which is often negotiated is the exculpation
provisions of the lease as they will apply to the lender. Lenders will simply not put
themselves into a position of ultimate liability for environmental indemnities,
consequential damages as a result of utility interruptions or other circumstances which
the lender might be assuming as a result of a defaulting landlord. On the other hand,
tenants with any strong bargaining position will not unexpectedly wish to look to some
credit in order to assure the tenant that it will receive the fruits of its economic bargain.
This latter area is one of great difficulty to negotiate and, as in all negotiations, the
outcome will depend almost entirely on the relative bargaining positions of the parties.
V.
RECENT CASES
Given the complex legal issues involved in the Subordination, Non-Disturbance
and Attornment Agreement, there are only a relatively few cases which have dealt with
such agreements. A recent Fifth Circuit case that is particularly interesting is MBank
Houston, National Association v. Armco, Inc., 1 F. 3d. 1439 (5th Cir .1993). This case
deals with an action brought by a construction lender and landlord against a key tenant,
Armco, for breach of its lease and a breach under the subordination agreement with the
construction lender. In this case, the construction lender had issued an interim loan, and a
separate lender had agreed to issue a permanent loan commitment for a 30-year, nonrecourse loan. The permanent loan disbursements were contingent on receipt by the
permanent lender of sworn estoppel certificates from the tenant. The lease provided in
rather typical language that the tenant would execute a subordination agreement to
facilitate the landlord's mortgage financing. The tenant and construction lender actually
executed a subordination, non-disturbance and attornment agreement pursuant to which
the tenant agreed not to terminate the lease without cause without the prior written
consent of the construction lender and agreed in the event of acquisition of the building
through foreclosure to recognize the new owner as a landlord under the lease. To make a
long story very short, the tenant decided that it would not go through with the deal and
defaulted. The construction lender sued the tenant for breach of the lease seeking rent for
the remainder of the lease term. The landlord cross-claimed against the tenant for breach
of the subordination agreement, tortuous interference with the loan commitment and
fraud for failure to disclose that it had decided to terminate the lease when it induced the
landlord to pay a substantial sum for leasehold improvements. The jury, sensing that the
tenant had wrecked a great deal of harm of both of the parties, awarded the construction
lender over $27 million in damages. The jury further found that the tenant had breached
the subordination agreement, that such conduct was the approximate cause of the
foreclosure and a deficiency judgment and awarded the landlord over $24 million in
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damages.
The primary issue on appeal was whether or not the landlord was entitled to rights
under the subordination agreement. Unfortunately for the landlord, the landlord had
assigned all of its rights to the construction lender and the court ruled that only the
construction lender as a substitute landlord had the right to collect damages pursuant to
the lease. The bottom line of the case was that the landlord was held not to have any right
to damages against the tenant, but the right of the lender under the subordination
agreement was squarely upheld.
Another interesting case is 641 Associates, Ltd. v. Balcor Real Estate Finance,
Inc., 1993 Bankr. LEXIS 1191 (Bankr. E.D. Pa. August 26, 1993). The Bankruptcy Court
issued an opinion following a remand by the District Court for further findings of fact
and conclusions of law. The Court concluded that under certain circumstances, it might
be acceptable to compel a mortgagee to grant a non-disturbance agreement in favor of a
tenant, even when no such rights existed under state law. The background of the case was
that the debtor had attempted to replace a tenant with another tenant which contemplated
the operation of a gym franchise in most of the space which the debtor had previously
agreed to rent. The lender, Balcor, refused to sign a specific non-disturbance agreement
and the debtor claimed that Balcor took this action simply to frustrate its reorganization.
Balcor contended that its actions were based upon insecurity regarding fundamental
terms of the lease, its dissatisfaction with the rent terms, and that the tenant contemplated
utilizing a principal of the debtor in its operations.
Interestingly, at a hearing the debtor and Balcor each presented witnesses who
gave differing opinions on the question of whether the presence of a non-disturbance
agreement in a lease was an essential term in the lease. The Court was ambivalent as to
its conclusion as to this issue.
As indicated above, the Court concluded that in the context of confirmation of a
reorganization plan, it might be acceptable under certain circumstances to compel a
mortgagee to grant a non-disturbance agreement with the tenant, where no such rights
existed under state law. However, the granting of such relief should be approached with
considerable caution.
The Court finally concluded that the relief sought by the debtor was extraordinary
and could only be granted where all equities run in the debtor's favor. In the case before
the Court, the Court held that all equities clearly did not run in favor of the debtor and
would not require Balcor to execute the non-disturbance agreement.
Travelers Insurance Co. v. Wyllys Square Associates Limited Partnership, 1992
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Conn. Super LEXIS 157 (Conn. Super. Ct. Jan. 14, 1992), involved a foreclosure of a
mortgage by Travelers on certain commercial office property owned by the defendant
(Wyllys). The other defendant was a tenant for years pursuant to a lease. The tenant
acknowledged the mortgage by executing a Tenant Estoppel letter and a Subordination,
Non-Disturbance and Attornment Agreement. Pursuant to this Agreement, the tenant
recognized Travelers as his Landlord under the terms of the Lease in the event of a
foreclosure. The Subordination Agreement provided that all subsequent leases would be
subordinate to the mortgage but that Travelers could subordinate its mortgage to such
lease and the lease would not be extinguished by foreclosure. The Agreement further
provided for attornment to the mortgagee in the event of a foreclosure.
The principle issue in the case was whether it should be the tenant's option or the
foreclosing mortgagee's option to decide whether or not the lease would be extinguished.
The Court ruled that it would almost never be the intention of the owner, the lending
institution or the tenant to allow the happening of an event of foreclosure to enable a
tenant to extinguish a lease. The Court squarely rejected the tenant's claim that lack of
privity with the foreclosing lender forced an extinguishment of his lease. The Court found
that the Tenant was bound to the Subordination-Attornment-Non-Disturbance Agreement
and found that the Tenant must attorn to the foreclosing lender.
VI.
CONCLUSION
The Agreement of Subordination Non-Disturbance and Attornment is a critical
document, particularly at a time when there are increasingly frequent landlord defaults,
workouts and foreclosures. The tenant will not wish to place itself in a position where its
right of possession is at risk and the lender, on the other hand, simply will not place itself
in the position where it must write out a blank check for the defaults of the landlord.
The most important point, if one can be made, is that the form of the Agreement
of Subordination, Non-Disturbance and Attornment should be worked out if at all
possible, at the time that the landlord and the tenant enter into the lease and the loan is
made. Otherwise, all parties can be assured of a long and difficult negotiation.
AGREEMENT OF SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT
THIS AGREEMENT OF SUBORDINATION, NONDISTURBANCE AND
ATTORNMENT (“Agreement”) is made by and among BUILDINGS-R-US, LIMITED
PARTNERSHIP, an Idaho limited partnership (“Landlord”), XAVIER'S GOURMET
DELI & BODY SHOP, INC., an Alaska corporation (“Tenant”), and THE MONEY
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SHOP, INC., a Minnesota corporation (“Lender”)
W I T N E S S E T H:
WHEREAS, under that certain lease dated as of May , 1994, Landlord did lease,
let and demise to Tenant those certain premises described in such lease (“Premises”),
which Premises are a portion of that certain real property described on Exhibit A attached
hereto and by this reference made a part hereof and known as The Potato Palace, One
East Tater Plaza, Boise, Idaho 11111 (the “Property”), for the period of time and upon the
covenants, terms and conditions therein stated (said document, together with any and all
amendments, modifications, renewals, consolidations, and replacements thereof, now or
hereafter entered into and to which Lender has consented pursuant to the terms of this
Agreement, shall be referred to herein collectively as the “Lease”);
WHEREAS, Lender has made a loan to Landlord, a portion of which loan is
evidenced by (i) that certain Deed of Trust Note, dated as of July 12, 1994 (said
document, together with any and all amendments, modifications, extensions, renewals,
consolidations and replacements thereof, and substitutions therefor, now existing or
hereafter entered into, shall be referred to herein collectively as the “Note”);
WHEREAS, the Note is secured, inter alia, by (i) that certain Deed of Trust and
Security Agreement, dated as of July 12, 1994 and recorded on July 16, 1994 in the Land
Records of Tater County, Idaho in Liber 0000, Folio 0000, by and among Landlord, Title
Guaranty Corporation Corporation (“TGC”) and Lender (said document, together with
any and all amendments, modifications, extensions, renewals, consolidations an
replacements thereof and substitutions therefor, now existing or hereafter entered into
shall be referred to herein collectively as the “Deed of Trust”), constituting a lien on the
Property; and (ii) that certain Assignment of Leases and Rents, dated as of July 12, 1994
and recorded on July 16, 1994 in the Land Records of Tater County, Idaho, in Liber
0000, Page 000, by and between Landlord and Lender (said document, together with any
and all amendments, modifications, extensions, renewals, consolidations and
replacements thereof and substitutions therefor, now existing or hereafter entered into,
shall be referred to herein collectively as the “Assignment of Leases”);
WHEREAS, the Deed of Trust is hereinafter collectively referred to as the
“Mortgage”; and
WHEREAS, Landlord and Tenant jointly and severally acknowledge and agree to
the aforesaid Assignment of Leases, and more particularly, the covenants and agreements
of Landlord set forth therein; and
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WHEREAS, the parties hereto desire to establish additional rights of quiet and
peaceful possession for the benefit of Tenant, and further to define the covenants, terms
and conditions precedent to such additional rights;
NOW THEREFORE, in consideration of the covenants, terms, conditions,
agreements, and demises herein contained, and in consideration of other good and
valuable consideration, each to the other, the sufficiency and receipt of which are hereby
acknowledged, the parties hereto agree, covenant and warrant as follows:
1.
Lender, Landlord and Tenant do hereby covenant and agree that the Lease
and any modifications, renewals, extensions and amendments subsequently approved by
Lender and all rights, options, liens or charges created thereby are and shall continue to
be subject and subordinate in all respects to the Mortgage and the liens created thereby, to
any advancements made thereunder, and any consolidations, extensions, amendments,
modifications or renewals thereof, and to any other mortgage or other security instrument
on the Premises which may hereafter be held by Lender.
2.
Subject to the observance and performance by Tenant of all of the
covenants, terms and conditions of the Lease and in any modification or amendment
specified herein or subsequently approved by Lender on the part of Tenant to be observed
and performed, Lender, for itself and its successors and assigns, and for any purchaser at
a foreclosure sale under the Deed of Trust, any transferee who acquires the Premises by
deed in lieu of foreclosure or otherwise, and the successors and assigns of such purchaser
and transferee (herein Lender and each such party is called a “New Landlord”) hereby
covenants that in the event Lender or other New Landlord (as the case may be) obtains
title to the Premises prior to the termination of such Lease, including any extensions and
renewals of the Lease now provided thereunder, either by foreclosure or by deed in lieu
of foreclosure, or any other action or proceeding instituted under in connection with the
Deed of Trust and thereafter obtains the right of possession of the Premises, that the
Lease and any modifications or amendments specified herein or hereafter approved by
Lender will continue in full force and effect, and Lender or other New Landlord (as the
case may be) shall recognize the Lease and any modifications or amendments specified
herein or subsequently approved by Lender and the Tenant's rights thereunder, and will
thereby establish direct privity of estate and contract between the Lender or other New
Landlord (as the case may be) and Tenant with the same force and effect and with the
same relative priority in time and right as though the Lease and any modification or
amendment specified herein or subsequently approved by Lender were directly made
from Lender or other New Landlord (as the case may be) in favor of Tenant.
3.
Tenant agrees to give Lender by registered or certified mail, return receipt
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requested, in care of the notice address under Section 10 as such address may be changed
by notice to Tenant in writing, a copy of any notice or statement served upon Landlord at
the same time as such notice is sent to Landlord, whenever any such notice or statement
alleges a default by or failure on the part of the Landlord to perform its duties under the
Lease. Tenant further agrees that in the event of any act or omission by Landlord which
would give Tenant the right to damages from Landlord or the right, either immediately or
after a period of time, to terminate the Lease, Tenant will not sue for such damages or
exercise any such right to terminate until (i) it shall have given written notice of the act or
omission to Landlord and to the Lender, and (ii) if the default by Landlord is of a nature
which can be cured by the Lender, and if the Lender is proceeding with diligence to cure
such default, Tenant shall have given the Lender until expiration of sixty (60) days
beyond the period for Landlord's cure of such default, provided that if the nature of such
default is such that the same cannot reasonably be cured within such sixty (60) day
period, such period shall be extended as necessary to allow the Lender a reasonable time
to cure such default, provided that the Lender commences such cure within the sixty (60)
day period and thereafter rectifies and cures said default with due diligence.
Notwithstanding the foregoing if the Premises are untenantable and Tenant is not, in fact,
conducting business in the Premises as a result of such default then such sixty (60) day
period shall be extended for no more than one-hundred eighty (180) days for a period of
at least one hundred eighty (180) consecutive days, Tenant may terminate the Lease.
Furthermore, provided that the Tenant continues to have effective use and occupancy of
the Premises for the normal operation of the Tenant's business, the Lender shall have a
period ending sixty (60) days after the date upon which it obtains possession of the
Premises to cure or correct such default, if such default is of a nature that it cannot be
cured by the Lender until it obtains possession, but is curable by Lender thereafter. It is
specifically agreed that Tenant shall not, as to Lender, require cure of any such default
which is personal to the Landlord, and therefore not susceptible of cure by Lender.
4.
That, in the event the interests of the Landlord under the Lease shall be
transferred to Lender or any other New Landlord by reason of foreclosure, deed in lieu of
foreclosure, or otherwise, Tenant, for itself and its successors and assigns, subject to
Tenant's rights under Paragraph 2 above, hereby covenants and agrees to make full and
complete attornment to the Lender or New Landlord (as the case my be) as substitute
Landlord upon the same terms, covenants and conditions as provided in the Lease, and all
extensions or renewals thereof, except for provisions which are impossible for Lender or
New Landlord to perform, so as to establish direct privity of estate and contract between
the Lender or New Landlord (as the case may be) and Tenant with the same force and
effect and relative priority in time and right as though the Lease and all modifications and
amendments thereof specified herein or hereafter consented to by Lender, together with
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all guarantees of Tenant's obligations under the Lease, was originally made directly
between Lender or New Landlord (as the case may be) and Tenant. Tenant will thereafter
make all payments directly to Lender or New Landlord (as the case may be) and will
waive as against Lender or New Landlord any defaults of Landlord (whether curable or
non-curable) which occurred prior to Lender or New Landlord gaining right of possession
to the Premises and becoming substitute Landlord. Tenant waives all liability and claims
against Lender arising out of failure of joinder and/or service of any and all foreclosure
actions by Lender under the Note and Mortgage upon the Premises, and arising out of any
actions at law by Lender to gain possession of the Premises. It shall not be necessary,
except as required by law, for Lender to name Tenant as a party to enforce its rights
under the Note or Mortgage, or any other instrument collateralizing the loan, or to
prosecute any action at law to gain possession of the Premises and, unless required by
law, Lender agrees not to name Tenant in any such proceeding.
5. Notwithstanding anything contained herein to the contrary, or anything to the
contrary in the aforesaid Lease or in any modifications or amendments thereto, Landlord
and Tenant hereby covenant and agree that Lender and its respective assignees, or New
Landlord shall not be:
(a)
Liable for any act or omission of Landlord.
(b)
Subject to any credits, offsets or defenses which Tenant might
have as to Landlord, or to any claim for damages or counterclaims against Landlord.
(c)
Required or obligated to credit Tenant with any rent or additional
rent for any rental period beyond the then current rental period which Tenant might have
paid Landlord.
(d)
Bound by any amendments or modifications of the Lease made
without Lender's consent, other than exercise of rights, options or elections contained in
the Lease, including without limitation options to extend the term of the Lease.
(e)
Bound to or liable for refund of all or any part of any security
deposit by Tenant, if any (there being no current security deposit) with Landlord for any
purpose unless and until such security deposit shall have been delivered by Landlord to
and actually received by Lender or New Landlord. In the event of receipt of any such
security deposit, Lender's or New Landlord's obligations with respect thereto shall be
limited to the amount of such security deposit actually received by Lender or New
Landlord, and Lender or New Landlord shall be entitled to all rights, privileges and
benefits of Landlord set forth in the Lease with respect thereto.
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(f)
Liable to Tenant under the Lease or otherwise from such time as
the Lender ceases to be the owner of the Property.
(g)
Liable for any covenant to undertake or complete construction or
installation of improvements on the Premises or the Property.
(h)
Liable for any payment to Tenant of any sums, or the granting to
Tenant of any credit, in the nature of a contribution towards the cost of preparing,
furnishing or moving into the Premises or any portion thereof.
6.
The Landlord's consent, approval or waiver under or with respect to the
Lease or the Premises or any matter related thereto shall not be effective unless such
consent, approval or waiver is accompanied by the written consent of Lender. Without
limiting the generality of the foregoing, without the prior written consent of Lender, the
Tenant will not (a) enter into any agreement amending or terminating the Lease, (b) enter
into any agreement terminating the Lease (except as permitted as of the date hereof
pursuant to an express provision of the Lease); provided, however, if such right to
terminate the Lease arises because of a default by Landlord, Tenant shall not terminate
the Lease unless (i) Landlord is in default under the Lease beyond any cure period, (ii)
Tenant has given Lender prior written notice of the default pursuant to Section 3 hereof,
and (iii) the cure period provided to Lender in Section 3 hereof has expired and Lender
has not cured such default within such cure period, (c) cancel the term of, or surrender,
the Lease, or (d) assign or sublet all or any part of the Premises, except only pursuant to
any assignment or sublease which, under the express provisions of the Lease, the Tenant
is entitled to make without the consent of the Landlord.
7.
Tenant agrees, from time to time, upon not less than ten (10) days' prior
written request by Lender to execute, acknowledge and deliver to Lender an estoppel
certificate containing the information Tenant is required to provide in the certificate
described in Section [ ] of the Lease as well as other similar information reasonably
requested by Lender.
8.
Tenant hereby acknowledges that Landlord has executed and delivered the
Assignments of Leases to Lender to secure the aforesaid loan, and Tenant covenants and
agrees as follows for the benefit and reliance of Lender:
(a)
That it will not, without the express written consent of Lender:
(i)
Cancel, terminate, modify, alter, amend or surrender the
Lease, except as provided therein or in any modification or amendment specified herein
or hereafter consented to by Lender, and then only after Lender has failed to or
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unsuccessfully attempted to pursue its rights and remedies as provided herein; or
(ii)
After the date hereof, enter into any agreement with
Landlord, its successors or assigns, which grants any concession with respect to the Lease
or which reduces the rent called for thereunder except as permitted as of the date hereof
pursuant to an express provision of the Lease; or
(iii) After the date hereof, create any offset or claims against
rents, or prepay rent except as permitted as of the date hereof pursuant to an express
provision of the Lease.
(b)
That it hereby acknowledges receipt of copies of the Assignments
of Leases and agrees, except to the extent prohibited by law or legal proceedings, to make
rental payments according to the terms of the Assignments of Leases upon written
demand by Lender in the event of any default under the Note or Mortgage.
(c)
That it will not subordinate the Lease to any other lien without first
obtaining Lender's written consent.
9.
Landlord and Tenant hereby jointly and severally agree for the benefit and
reliance of Lender or New Landlord (as the case may be) as follows:
(a)
That neither this Agreement, the Assignments of Leases, nor
anything to the contrary in the aforesaid Lease or in any modifications or amendments
thereto shall, prior to Lender's or New Landlord's acquisition of Landlord's interest in and
possession of the Premises, operate to give rise to or create any responsibility or liability
for the control, care, management or repair of the Premises upon the Lender or New
Landlord, or impose responsibility for the carrying out by Lender or New Landlord of
any of the covenants, terms and conditions of the Lease or of any modification or
amendment specified herein or hereafter consented to by Lender or New Landlord, nor
shall said instruments operate or make the Lender or New Landlord responsible or liable
for any waste committed on the Premises by any party whatsoever, or for dangerous or
defective condition of the Premises, or for any negligence in the management, upkeep,
repair or control of said Premises resulting in loss, injury or death to any Tenant, licensee,
invitee, guest, employee, agent or stranger. Notwithstanding anything to the contrary in
the Lease, Lender, its successors and assigns or New Landlord shall be responsible for
performance of only those covenants and obligations of the Lease accruing after Lender's
or New Landlord's acquisition of Landlord's interest in and possession of the Premises,
and Lender's or New Landlord's obligations to Tenant shall be further limited as herein
provided.
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(b)
That in the event Lender or New Landlord gains title to the
Premises and becomes substitute Landlord, it is agreed that Lender or New Landlord may
assign its interest as substitute Landlord upon written notice to Tenant but without notice
to, the consent of, or assumption of any liability to any other party hereto.
(c)
Tenant shall look solely to the Property for recovery of any
judgment or damages from Lender or such other New Landlord, and neither Lender nor
such other New Landlord nor any present or future partner of Lender or such other New
Landlord or of any partnership which is now or hereafter a partner of Lender or such
other New Landlord (or of any partnership which is now or hereafter a partner of a
partner of Lender or such other New Landlord) shall have any personal liability, directly
or indirectly, under or in connection with the Lease or this Agreement or any amendment
or amendments thereto, either thereof made at any time or times, heretofore or hereafter,
and Tenant hereby forever and irrevocably waives and releases any and all such personal
liability. In addition, neither Lender or such other New Landlord nor any successor or
assign of Lender or such other New Landlord shall have at any time or times hereafter
any personal liability, directly or indirectly, under or in connection with or secured by an
agreement, lease, instrument, encumbrance, claim or right affecting or relating to the
Property or the Mortgaged Property (defined for the purposes hereof as defined in the
Mortgage) or to which the Property or the Mortgaged Property is now or hereafter
subject. The limitation of liability provided in this Section is in addition to, and not in
limitation of, any limitation on liability applicable to Lender or such other New Landlord
provided by law or by any other contract, agreement or instrument.
10.
Any notices to Tenant or Lender hereunder shall be effective upon mailing
to Tenant or Lender by certified mail, return receipt requested, addressed as follows:
Tenant: Xavier's Gourmet Deli & Body Shop, Inc.
1122 Reallycold Road
Juno, AK 12345-6789
Attention: Jean Claude LeSandwich,
until Tenant has commenced beneficial use of the Premises, and
The Potato Palace, One East Tater Plaza, Suite 1000 Boise, ID
11111
Attention:
Jean
Claude
LeSandwich,
President, Xavier's Gourmet Deli & Body Shop, Inc.,
after
Tenant
has
commenced
beneficial
use
of the Premises with a copy in each case to:
General
Counsel,
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Xavier's
Gourmet
Deli
&
Body
Shop,
Inc.,
1122 Reallycold Road Juno, AK 12345-6789 and to:
Tenant's Real Estate Department at the same address.
Lender:
The Money Shop, Inc.
123 Easy Street
Thirteenth Floor
Geronimo, Minnesota 54321
Attention: Loan Director
Telecopier: 555/555-5555
or as to each party, to such other address as the party may designate by a notice given
in accordance with the requirements contained in this Section 10.
11.
This Agreement contains the entire agreement between the parties hereto.
No variations, modifications or changes herein or hereof shall be binding upon any party
hereto unless set forth in a document duly executed by or on behalf of such party.
12.
This instrument may be executed in multiple counterparts, all of which
shall be deemed originals and with the same effect as if all parties hereto had signed the
same document. All of such counterparts shall be construed together and shall constitute
one instrument, but in making proof, it shall only be necessary to produce one such
counterpart.
13.
Whenever used herein, the singular number shall include the plural, the
plural the singular, and the use of any gender shall include all genders. The words
“Lender,” “Landlord” and “Tenant” shall include their heirs, executors, administrators,
beneficiaries, successors and assigns.
14.
Nothing contained in this Agreement shall in any way impair or affect the
liens created by the Mortgage.
15.
The Landlord hereby agrees for itself and its successors and assigns, that
(i) the within Agreement does not (a) constitute a waiver by Lender of any of its rights
against the Landlord under the Mortgage, the Note, the Assignments of Leases or any of
the other “Loan Documents” (as defined in that certain Construction and Term Loan
Agreement, dated as of July 12, 1994, between Landlord and Lender (the Construction
and Term Loan Agreement, as so amended and as further amended, supplemented,
modified, or restated from time to time, shall be referred to herein as the “Loan
Agreement”) and/or (b) in any way release the Landlord from its obligation to comply
with the terms, provisions, conditions, covenants, agreements and clauses of the
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Mortgage and the other Loan Documents, (ii) the provisions of the Mortgage and the
other Loan Documents remain in full force and effect and must be complied with by the
Landlord, (iii) in the event of an Event of Default under the Mortgage or other Loan
Documents, Tenant may pay the rent and all other sums due under the Lease to the
Lender, and (iv) Landlord has requested Tenant to execute and deliver the within
Agreement.
16.
The terms, covenants and conditions hereof shall inure to the benefit of
and shall be binding upon the respective parties hereto, and their respective successors
and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, sealed and delivered in their respective names and in their behalf, and if a
corporation, by its officers duly authorized, as of the date and year above written.
Lender:
THE
MONEY
a Minnesota corporation
By:
SHOP,
INC.,
___________________________________
Name: ___________________________________
Title: ___________________________________
Tenant:
XAVIER'S GOURMET DELI & BODY SHOP, INC.,
an Alaska corporation
By:
___________________________________
Name: Xavier
LeSandwich
Title: Chairman and Chief Executive Officer
Landlord:
BUILDINGS-R-US LIMITED PARTNERSHIP,
an Idaho limited partnership,
By:
Its Managing General Partner:
BIGCO LIMITED PARTNERSHIP,
an Idaho limited partnership, general partner
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By:
its duly authorized agent
TATER TOWERS DEVELOPMENT LIMITED,
By:
_____________________________(SEAL)
Name:
Title:
Notary for Lender
STATE OF
_____________________________)
COUNTY OF _____________________________)
On this ____________________ day of ____________________________,
199__, before me the undersigned officer, who personally appeared
___________________________ who acknowledged himself to be the
______________________________ of THE MONEY SHOP, INC., a Minnesota
corporation, and that he, as such _________________________, being authorized so to
do, executed the foregoing instrument for the purposes therein contained by himself as
such _________________________________________.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
_______________________________
Notary Public
Notary for Lender
STATE OF
_____________________________)
)
COUNTY OF _____________________________)
On this ____________________ day of ___________________________,
199__, before me the undersigned officer, who personally appeared _____________
who acknowledged himself to be the ______________________________ of THE
MONEY SHOP, INC., a Minnesota corporation, and that he, as such
_________________________, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by himself as such ________________.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
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_______________________________
Notary Public
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