A Tenant’s Guide to Estoppel Certificates
When a landlord requests an estoppel certificate, commercial tenants should approach the document with caution and understanding. While an estoppel certificate is not intended to modify a lease, it can significantly impact a tenant’s future rights and claims. This guide explains the purpose of an estoppel certificate, key considerations for commercial tenants, and potential leverage created by a landlord’s request for an estoppel certificate.
What is an Estoppel Certificate?
An estoppel certificate is a legal document that a tenant signs to confirm the current status of their lease. This document is often requested by landlords in connection with a property sale or refinancing, as potential buyers and lenders rely on it to verify key lease terms. By signing an estoppel certificate, a tenant is bound by the statements made in the estoppel certificate and cannot later contradict them.
What Information is Included?
An estoppel certificate typically includes information such as:
- Current Rent: The base rent and any additional charges currently payable under the lease.
- Lease Expiration Date: Confirmation of the lease term, including renewal options.
- Landlord’s Construction Obligations: Acknowledgment that any required buildout or improvements have been completed.
- Landlord Defaults: Confirmation that the tenant is not aware of any unaddressed landlord defaults.
- Claims and Offsets: A statement that the tenant has no claims against the landlord or rights of offset against the rent coming due under the lease.
- Prepaid Rent: Confirmation that rent has not been prepaid more than one month in advance.
Why Are Estoppel Certificates Important?
Landlords request estoppel certificates to provide certainty to themselves, potential buyers, investors, or lenders regarding the financial and operational status of the property. The information in an estoppel certificate helps these parties assess the reliability of rental income from the property and identify any potential disputes that could expose the landlord to additional costs or impact property value.
Key Considerations for Tenants
- Carefully Review the Estoppel Certificate: While an estoppel certificate does not amend the lease, it can bind the tenant to its statements. Tenants should compare the estoppel to their lease and records and ensure the statements contained in the estoppel certificate are accurate.
- Avoid Unintentional Waivers: If a tenant fails to disclose an ongoing dispute or issue, they may be barred from raising it later. Any unresolved landlord obligations, such as outstanding repairs or reimbursements, should be explicitly noted.
- Watch for Lease Modifications: Occasionally, landlords may attempt to insert provisions that alter the terms of a lease. Tenants should ensure that the estoppel certificate only confirms existing lease terms and does not introduce new obligations.
- Potential Leverage: Because landlords typically need to receive executed estoppel certificates to close a sale or refinancing, tenants may have an opportunity to negotiate for needed repairs or lease clarifications before signing. Be aware however that the lease likely includes requirements relating to the timely execution and return of requested estoppel certificates and tenants should avoid triggering liability under the lease.
- Consult Legal Counsel: Given the significance of an estoppel certificate, tenants should seek legal advice before signing.
Lease Requirements Regarding Estoppel Certificates
Most commercial leases require tenants to provide an estoppel certificate upon request, often within a specified timeframe. Some leases will specify the information to be included within an estoppel certificate and may even attach a template form. A tenant should review the lease to understand their responsibility with respect to a requested estoppel. Landlords will frequently request that a tenant provide more information than is required under the lease. However, Tenants must also understand that failure to comply with the lease provisions with respect to a requested estoppel may result in penalties.
Conclusion
An estoppel certificate is more than a routine document; it can impact a tenant’s rights and financial obligations. By thoroughly reviewing the certificate, ensuring accuracy, and leveraging the request when possible, tenants can protect their interests while complying with lease requirements. If in doubt, consulting a commercial real estate attorney is always advisable.
