For US investors, lenders and occupiers entering the Scottish market, however, familiar US real estate practices do not always translate directly. One example is the Subordination, Non-Disturbance and Attornment Agreement (SNDA), a document commonly used in US real estate transactions but generally not required in Scotland.
This is because Scots law approaches lease priority, tenant protection and security enforcement differently, with many of the protections typically included in an SNDA already built into the Scottish legal framework.
For US lenders, investors and occupiers involved in Scottish property transactions, understanding these differences can help avoid requesting unnecessary documentation, reduce negotiation time and keep deals moving.
What is an SNDA?
In broad terms, an SNDA is a three-party agreement that governs the relationship between a tenant, its landlord and the landlord's lender. In the US, it is often used to regulate what happens to a lease if the landlord defaults on its financing and the lender enforces its security.
It usually covers three points:
Subordination - the tenant agrees that its lease is subordinate to the lender's security, giving the lender's charge priority over the lease even if the lease pre-dates the security.
Non-disturbance - in return, the lender agrees that the tenant can remain in occupation if the lender calls up its security, provided the tenant is complying with the lease.
Attornment - if the lender enforces its security and either takes ownership of the property or sells it, the tenant agrees to recognise the lender or purchaser as its new landlord.
An SNDA therefore protects tenants from losing their lease in a US foreclosure and gives lenders certainty about the priority of their security.
Why is the position different in Scotland?
Scots law starts from a different legal foundation. Once properly constituted and, where required, registered, a Scottish lease can create a real right in land. Unlike a purely contractual right, a real right generally binds not only the original landlord and tenant but also future owners of the property.
As a result, many of the protections that an SNDA is designed to provide under US law are already built into the Scottish legal framework and transactional processes. For example, if a Scottish property is sold, the purchaser will generally acquire the property subject to the tenant's real right under the lease.
Similarly, when a lender enforces a heritable security, the process does not typically operate in the same way as a US foreclosure that can extinguish existing leasehold interests.
In many cases, enforcement leads to a sale of the property, with the buyer stepping into the landlord's position under the lease. The tenant's rights and obligations generally continue under the lease, and any new owner becomes the landlord by operation of law. In practice, this means that a tenant's occupation will not ordinarily be disturbed simply because a lender has enforced its security. For these reasons, separate non-disturbance and attornment provisions are largely unnecessary in most Scottish transactions.
That said, the precise priority position can depend on when the lease and the lender's security were put in place and, where relevant, whether the lender consented to the lease. Where the landlord's financing predates the lease, lender consent may therefore still be required to protect the tenant's position. This will normally be identified during the legal due diligence process and addressed as part of the Scottish transactional process, rather than through a separate SNDA.
Why does this matter in cross-border deals?
For US counsel and lenders, requesting an SNDA is often a standard part of the real estate finance checklist. For US occupiers, the absence of an SNDA can also feel unfamiliar, particularly where the property is subject to financing arrangements entered into by the landlord. In a Scottish transaction, however, asking for an SNDA can add time and complexity without improving the parties' positions. This is because the relevant protections are generally provided through Scots law and established transactional practice.
Recognising the distinction at an early stage can help align expectations, avoid unnecessary negotiation and keep the transaction focused on the documentation that is actually required, rather than documents designed for a different legal system.
How MFMac can help
At MFMac, we regularly advise international lenders, investors and occupiers on Scottish real estate transactions and often support other law firms on cross-border deals. We help overseas clients and counsel understand the differences between legal systems and explain the Scots law position in clear, commercial terms. If your transaction involves Scottish property, we can help ensure it is structured efficiently and reflects the requirements of Scots law.
