Real Estate Terms Dictionary



Subordination of Lease



Definition of 'Subordination of Lease'

Subordination of lease refers to the tenant's consent to subordinate his or her rights over a property to the rights of the bank holding the mortgage on the property. A subordination of lease agreement is created for this purpose.


What does Subordination of Lease mean:

When a property is being leased, it can be common for the tenant to invest a certain amount of money in leasehold improvements or to rely on the possession of the property until the expiration of the lease term. If the owner of the property defaults on the mortgage, the tenant can face serious inconveniences, if not real loses.

The above scenario illustrates what can happen when a lease is subordinate to a mortgage. The lender can have the tenant evicted even if the latter respected his or her contract obligations. In order to avoid this situation, a tenant's best solution, if possible, is signing an agreement with the lender in which the lease is given priority over the mortgage.


Example:


Here's a real-life example from one of the properties researched on PropertyShark:

Subordination of lease - example

References:
http://www.acc.com/legalresources/quickcounsel/tbosnaaa.cfm



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Disclaimer:
The glossary is intended to provide real estate professionals and home buyers with a basic understanding of various specialized terms related to legal rights over a property. All terms appear in public records such as ACRIS. We do not take responsibility for the legal accuracy of the definitions provided and ask that use of these explanations in a legal setting be made only after checking with a lawyer or another specialist in the field.