What does the term "subordination" refer to in lease agreements?

The term "subordination" in lease agreements refers to a clause that establishes the priority of lease agreements in relation to mortgage agreements or future liens. This means that if there are financial obligations such as mortgages on the property, the lease may be secondary to those obligations, depending on how the lease is structured. This is significant because it affects the rights of the tenant in the event of a foreclosure or sale of the property. If the lease is subordinate, it may be terminated by the lender in the event of default on the mortgage, which directly impacts the security and stability of the tenant's tenancy.

Understanding subordination is crucial for both landlords and tenants, as it influences the negotiation of lease terms, particularly related to security and obligations in the event of changes in property ownership or financing. Therefore, it plays a vital role in the overall dynamics of real estate leasing and property management.