Estoppel Provisions in Commercial Real Estate Leases
Commercial leases generally provide landlords the right to request an estoppel certificate from a tenant at certain times or under certain circumstances. An estoppel certificate is a signed statement by a tenant that certifies the accuracy of certain facts about their lease agreement and the leased premises. The purpose of an estoppel certificate is to confirm the current status of a lease’s terms and conditions, including key elements such as the lease start and end dates, rent amount, security deposit, and any modifications or defaults. Once signed, the tenant cannot later claim that the details certified in the estoppel are inaccurate, which provides reassurance to third parties, such as prospective buyers or lenders, who may rely on the information to make informed decisions. Estoppel certificates can be of critical importance at various points in a landlord’s ownership of a property and understanding the nuances of a lease’s estoppel provision and their implications is essential for both landlords and tenants.
Key Considerations in Negotiating Estoppel Provisions
Timing for Delivery
A critical aspect of an estoppel provision is the timeframe within which the tenant must provide the estoppel certificate following the landlord’s request. Landlords typically require a quick turnaround, often within 10 to 15 days, because the request usually coincides with time-sensitive transactions like property sales or refinancing. Delays in providing the estoppel certificate can jeopardize these transactions, potentially causing significant repercussions for the landlord. Consequently, it is important for tenants to understand these timing requirements and to ensure they have internal processes in place to respond promptly.
In addition to the time frame set forth in the estoppel provision for the tenant to provide a signed estoppel to the landlord, the remedies provision of the lease will often frequently include a compressed timeframe within which the tenant’s failure to provide a requested estoppel will constitute an event of the default, giving rise to the landlord’s right to exercise remedies. When negotiating the lease as landlord, it is important to consider both time periods to ensure that you will be able to receive a requested estoppel quickly enough to meet the requirements of a potential purchaser or lender. Tenants must also evaluate these time periods closely to ensure they will be able to meet the required timing.
Content and Specificity
Estoppel certificates generally contain information such as the lease commencement and expiration dates, current rent, the status of rent payments, any outstanding defaults or disputes, security deposits, and any amendments to the lease. It is often helpful for the lease to specify exactly what information must be included in the estoppel certificate. Including a detailed form estoppel as an exhibit to the lease can often be particularly helpful, providing a clear template for the tenant to follow and reducing the risk of a later dispute as to what information the tenant is required to provide. This specificity not only helps landlords, but from the tenant’s perspective, being specific about what information the tenant is required to provide can defend against overly broad estoppel requests from a potential purchaser or lender for the landlord.
Frequency of Requests
Tenants often seek to limit the frequency with which a landlord can request an estoppel certificate to avoid the administrative burden and potential disruption caused by responding to such a request. However, even in agreeing to these restrictions, landlords generally need the flexibility to request estoppels in connection with significant transactions such as sales or refinancings.
Remedies for Non-Compliance
In cases where a tenant fails to provide the requested estoppel certificate within the agreed timeframe, the landlord will generally have the remedies available to it that it would have in connection with any other event of default under the lease. However, these remedies, can be challenging or impracticable to exercise in connection with a tenant’s delay in providing a requested estoppel. Accordingly, landlords may consider providing for additional remedies that may be easier to exercise such as providing for a fee for the delayed return of an estoppel. The threat of an immediate financial consequence to noncompliance may help incentivize the tenant to expedite its compliance with the request.
Importance of Accuracy
It is crucial for tenants to ensure the accuracy of the information provided in the estoppel certificate. Tenants should review their records carefully before completing the estoppel to confirm all details are correct. Although estoppels are not intended to modify the substance of the lease, tenants will later be prevented from taking a position contrary to that set forth in the estoppel. Therefore, tenants should be thoughtful in how they complete an estoppel to avoid inadvertently waiving a claim they may otherwise have.
Conclusion
By clearly outlining the requirements and expectations for estoppel certificates, landlords and tenants can avoid misunderstandings and potential disputes. Key considerations include the timing for delivery, the specific content required, the frequency of requests, and remedies for non-compliance. By addressing these factors carefully during lease negotiations, both parties can ensure a smoother and more secure leasing relationship, benefiting all involved in the property’s lifecycle.
