A subordination agreement is a legal document that establishes that one debt is ranked behind another in priority for the recovery of a debtor`s repayment. Debt priority can become extremely important when a debtor is in arrears with payments or goes bankrupt. « A lease agreement that provides for subordination of the tenant only in exchange for a non-disruption clause does not guarantee the agreement of a future lender. At least the lender can insist that certain conditions be met before the tenant is assured not to disturb him, that these conditions should be included by the landlord in the clause of the rental agreement itself. « Lease Subordination Clause, Sonny Brown Associates. 3. The right of both parties to continue the lease. « Whether or not an automatic subordination clause is included in the lease agreement, landlords are very often faced with the obligation, in their mortgage obligation, to obtain from all tenants of the property subordination agreements as a condition of the first advance of the mortgage loan. » The Benefits of Subordination, Non-Disturbance and Attornment Agreements, Joseph Grignano et Iris Tam, Blake, Cassels & Graydon LLP. If the second holder of the deposit provides for a subordination clause, this allows primary mortgages on the same property to have a higher right. If reimbursement were to become a problem, for example. B in the event of insolvency, subordinated loans would lag behind the original mortgage and may not be paid at all. A subordination clause effectively gives the current claim to the agreement more priority over all other agreements concluded under the original agreement. These clauses are most frequently seen in mortgage contracts and bond-issuing agreements.
For example, when a company issues bonds with a subordinate clause in the market, it ensures that, if more bonds are issued in the future, the original bondholders receive a payment before the company pays all other debts issued subsequently. This is an additional protection for original bondholders, as they are more likely to recoup their investment, with a subordination clause. The Mortgagor essentially repays it and gets a new loan when a first mortgage is refinanced, so the most recent new loan now comes in second place. . . .