At its core, an estoppel certificate is simply a statement that a commercial lease exists and a recitation of certain provisions of the lease. But estoppel certificates also typically require a tenant to attest to compliance with the lease by the landlord and tenant. Commonly requested admissions include the absence of any defaults, lease payments are up to date, the tenant has not sublet or transferred its interest in the property, and an affirmation all tenant improvements have been made by the landlord.
Estoppel certificates provide Lenders and prospective investors/buyers comfort that the landlord/owner/seller has the cash flow and property status it purports to have. They also serve as admissions in subsequent litigation; therefore, tenant’s counsel must do more than scrutinize the draft estoppel certificate for generic real estate disputes. To do their jobs correctly, tenant’s counsel needs to understand and predict the (A) the status of the landlord-tenant relationship; and (B) the building’s condition. In so doing, tenant’s counsel can revise and negotiate the estoppel certificate to subtly (or not so subtly) account for that specific situation.
Classic examples of estoppel certificates to support landlords or buyers in litigation include:
- A landlord proving CAM charges to a lease were proper. The tenant attested to this fact in the estoppel certificate, which disproved an assignee’s lawsuit seeking a reduction in CAM charges that the assignee claimed were improper.
- A landlord disproving it entered into an oral modification with the tenant. The estoppel certificate admitted no modifications or other agreements existed other than the copy of the lease attached to the executed document.
- A buyer using an estoppel certificate executed by seller during a pause in negotiations to prove Seller attested no lease defaults existed.
(A seller could always request the buyer execute an estoppel certificate that as of the date negotiations paused it has no offsets or defenses resulting from seller’s conduct)
Most commercial leases require the tenant to deliver estoppel certificates upon landlord’s request. Landlord’s counsel should take advantage of this situation. Annual estoppel certificate requests proactively (A) defuse potential claims or complaints; and (B) may limit the damages the tenant could recover in a lawsuit. Additionally, estoppel certificate requests can be made immediately after specific events. For example, obtaining an estoppel certificate after tenant improvements or certain repairs can be made to show the tenant’s satisfaction with the related work and that the work was completed.
One more note: landlords and their attorneys have been known to try to amend leases through the estoppel certificates. While this is frowned upon, tenant’s attorneys must be vigilant to protect against an unwanted lease amendment.
Experienced attorneys will provide you with guidance on estoppel certificates and other documents in your real estate transactions.
David Seidman is the principal and founder of Seidman Law Group, LLC. He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, dispute resolution and avoidance, contract drafting and negotiation, real estate, and other issues. He can be reached at firstname.lastname@example.org or 312-399-7390.
This blog post is not legal advice. Please consult an experienced attorney to assist with your legal issues.