Three documents shape modern Texas commercial leasing more than the landlord and tenant alone realize: the Letter of Intent (LOI) that precedes the lease, the Subordination, Non-Disturbance, and Attornment (SNDA) agreement that addresses the relationship between the lease and the landlord’s mortgage, and the Estoppel Certificate that confirms lease facts to third parties. For DFW commercial leasing, LOIs, SNDAs, and estoppel certificates are routine on transactions across the metro, particularly in the institutional ownership market (REITs, pension funds, large private capital) that dominates Class A office and large retail product. Each document creates obligations and protects against future disputes, and each is more important than its routine treatment suggests. This page lays out the role of each document, the common provisions, the negotiation considerations, and the strategic implications for Texas commercial landlords and tenants.
The Letter of Intent (LOI)
A Letter of Intent is a preliminary document that outlines the basic terms of a proposed commercial lease before the formal lease is drafted. The LOI identifies the parties, the premises, the rent and term, and the major economic and operational terms.
LOIs serve several functions:
Negotiating efficiency. Major business terms get agreed at the LOI stage, allowing the lawyers to draft the lease with the heavy lifting already done.
Documentation of agreement. The LOI documents what the parties have agreed before the formal lease is signed, reducing later disputes about basic deal terms.
Lender or capital partner approval. Some commercial transactions require approval from lenders or capital partners; the LOI provides them with the deal structure for review.
Permission to incur expenses. The LOI may authorize either party to incur due-diligence expenses (inspection, environmental review, etc.) before the full lease is finalized.
Binding vs. non-binding LOIs
The most important question about an LOI is whether it’s binding. The default rule is that an LOI is generally non-binding except for specific provisions that the parties expressly identify as binding.
Typical binding LOI provisions:
- Confidentiality. The parties agree to keep negotiations confidential.
- Exclusivity. The landlord agrees not to negotiate with other prospective tenants for a defined period.
- Due diligence funding. Allocation of due-diligence costs.
- Specific terms identified as binding.
Typical non-binding LOI provisions:
- The economic terms of the lease itself.
- The full lease provisions to be drafted.
- The operational details to be finalized.
A poorly drafted LOI that doesn’t clearly distinguish binding from non-binding provisions can create ambiguity. Best practice is explicit language: “Except for the provisions of paragraphs X, Y, and Z, this Letter of Intent is non-binding.”
Some LOIs are deliberately fully binding, functioning more as preliminary leases. These are uncommon and require careful drafting to avoid creating obligations the parties don’t intend.
SNDAs: what they do
A Subordination, Non-Disturbance, and Attornment Agreement (SNDA) is a three-way agreement among the landlord, the tenant, and the landlord’s lender. It addresses what happens to the tenant’s lease if the landlord’s mortgage is foreclosed.
Three components:
Subordination. The tenant subordinates the lease to the lender’s mortgage. This means the lease is junior to the mortgage and would normally be extinguished in foreclosure (under traditional rules; PTFA and SNDA modify this for residential).
Non-disturbance. The lender agrees that if the mortgage is foreclosed, the tenant’s lease will not be disturbed. The tenant can continue under the lease’s terms despite the foreclosure. This protects the tenant from being evicted by the foreclosure-sale buyer.
Attornment. The tenant agrees that, after foreclosure, the tenant will recognize the foreclosure-sale buyer as the new landlord and continue paying rent to the buyer.
The SNDA is essential for tenants who are making substantial investments in build-out or improvements. Without an SNDA, a foreclosure could extinguish the lease and the tenant’s investment.
When SNDAs matter
SNDAs are most important for:
Tenants making substantial investments. A tenant building out a $500,000 retail space wants assurance that a foreclosure won’t terminate the lease and force the tenant to relocate.
Long-term leases. A 10- or 20-year lease is significantly affected by foreclosure risk.
High-quality tenants. Tenants who are major economic players (national chains, regional anchors, etc.) typically demand SNDAs as a condition of leasing.
Lenders. Lenders generally want SNDAs because they preserve the lease income stream and the property value in foreclosure.
Without an SNDA, a residential lease has the PTFA protections (90-day notice, lease survival for fixed-term tenants in some cases). But commercial leases without SNDAs face the traditional rule of extinguishment by foreclosure.
Common SNDA negotiation issues
Tenant’s protected rights. The non-disturbance commitment is the tenant’s primary protection. The lender wants to limit the protection to specified circumstances; the tenant wants it broad.
Cure rights. Some SNDAs allow the lender to step in and cure landlord defaults, preserving the lease. Some require the lender to do so as a condition of the lease’s survival.
Material modifications. Some SNDAs limit what landlord modifications to the lease the tenant can make without lender consent. Tenants want broader modification rights; lenders want more control.
Tenant default. SNDAs typically allow termination if the tenant defaults, but the definition of default and the cure rights matter.
Notice provisions. The SNDA’s notice provisions affect how the parties communicate during disputes.
Negotiating SNDAs is a separate process from negotiating the lease. Lender SNDA forms are often standard but can be modified.
Estoppel Certificates
An Estoppel Certificate is a document signed by the tenant that confirms specific facts about the lease. The certificate is typically requested by:
- A prospective buyer of the property.
- A new lender or refinancing lender.
- A subordination/attornment partner in an SNDA.
- Various due-diligence purposes.
The estoppel certifies (typically):
- The lease is in full force and effect.
- The lease has not been amended (or, if amended, listing all amendments).
- The current rent and any prepaid rent.
- The security deposit amount.
- The tenant has not been delinquent or in default (or describing any current default).
- There are no current claims by the tenant against the landlord (or describing them).
- The lease term and any options.
- Other lease facts as requested.
Once signed, the tenant is “estopped” from later asserting facts contrary to the certificate. This means the buyer, lender, or other party can rely on the estoppel as accurate.
Why estoppel certificates matter
Estoppel certificates protect transactions:
Property buyers. The buyer needs to know what they’re buying. The estoppel confirms the lease facts before closing.
Lenders. Lenders need to confirm the lease income stream’s reliability.
SNDA partners. SNDAs typically include or require contemporaneous estoppels.
Other due diligence. Investors, partners, or others may require estoppels.
The lease typically requires the tenant to provide estoppel certificates within a specified timeframe (commonly 10 to 30 days) on landlord’s request. Refusal to provide an estoppel can support claims of breach by the tenant.
Common estoppel issues
Disputed facts. The tenant may claim defaults or modifications that the landlord denies. The estoppel becomes the documentation of the disputed facts.
Materiality. Some lease facts are material; others aren’t. The buyer or lender may not need every detail.
Confidentiality. Estoppels sometimes contain sensitive business information that the tenant doesn’t want broadly distributed. Confidentiality provisions in the estoppel address this.
Update timing. The estoppel is current as of its date. A delay between estoppel and closing can create issues if facts change.
Standard form vs. specific. Some leases require a specific estoppel form; others allow the requestor to specify.
Refusal consequences. Tenants who refuse to provide estoppels can be in breach of the lease, but the lease’s remedies for refusal vary.
Litigation strategy notes
For tenants negotiating a lease:
Negotiate SNDA up front. Don’t wait for the lender to demand it later. Include SNDA negotiation as part of the lease negotiation.
Limit estoppel obligations. Cap the time required for estoppel response, limit the matters covered, and require the landlord to certify some matters as well.
Watch for binding LOI provisions. Make clear which provisions are binding and which aren’t.
For landlords negotiating a lease:
Use familiar SNDA forms. Lender forms are typically negotiable but starting from a familiar baseline saves time.
Streamline estoppel obligations. The landlord typically wants quick estoppel response with a wide scope.
Make LOI binding where appropriate. Specific provisions (exclusivity, due-diligence cost allocation) are often appropriately binding.
For both parties:
Document everything. Negotiations, drafts, side letters, all should be retained.
Use experienced counsel. Commercial leasing involves substantial documents; experienced counsel saves money over the deal’s life.
Plan for the unexpected. Most leases are fine, but the documents matter when something goes wrong (foreclosure, sale, dispute, default).
Frequently Asked Questions
What is a Letter of Intent (LOI) in commercial leasing?
A preliminary document outlining the basic terms of a proposed commercial lease before the formal lease is drafted. The LOI identifies the parties, premises, rent, term, and major operational terms. Generally non-binding except for specifically identified binding provisions.
Are LOIs binding?
Generally non-binding except for specific provisions the parties identify as binding. Typical binding provisions: confidentiality, exclusivity, due-diligence cost allocation. Typical non-binding: the economic and operational terms of the lease itself.
What is a SNDA?
A Subordination, Non-Disturbance, and Attornment Agreement, a three-way agreement among the landlord, tenant, and landlord's lender. Subordination subordinates the lease to the mortgage. Non-disturbance preserves the lease in foreclosure. Attornment requires the tenant to recognize the foreclosure-sale buyer as the new landlord.
When is a SNDA important?
For tenants making substantial investments in build-out, for long-term leases, for high-quality tenants, and for lenders preserving lease income. Without a SNDA, a commercial lease can be extinguished by foreclosure under traditional rules.
What is an Estoppel Certificate?
A document signed by the tenant confirming specific facts about the lease, that it's in full force, the rent and deposit amount, no current defaults, etc. Once signed, the tenant is "estopped" from asserting facts contrary to the certificate.
Who requests Estoppel Certificates?
Prospective buyers, new lenders, refinancing lenders, SNDA partners, and other due-diligence parties. The lease typically requires the tenant to provide estoppels within a specified time (commonly 10-30 days) on landlord's request.
What does the SNDA do for the tenant?
The non-disturbance commitment preserves the lease in foreclosure. Without the SNDA, foreclosure of the landlord's mortgage could extinguish the lease (under traditional rules), leaving the tenant without protection. With the SNDA, the lease survives and the tenant continues under the lease's terms.
Can a tenant refuse to provide an Estoppel Certificate?
Refusal may be a breach of the lease. The lease typically requires the tenant to provide estoppels within a specified time. Tenants who refuse face damages claims and (in some leases) specific remedies for non-compliance.