A spike in recent client inquiries to evaluate proposed estoppel certificates may signal brighter times ahead for the commercial real estate market. Hope springs eternal, and now seems an opportune time to review the basic principles, and potential pitfalls, associated with estoppel certificates.
First, an estoppel certificate is a written form generally requested from tenants when a commercial property owner is attempting to sell or refinance property. The buyer or lender, in the course of its due diligence, seeks confirmation of the status of all leases at the property, and estoppel certificates once executed, are binding and will serve to prohibit a party from later claiming some different state of facts.
Typically, a tenant is asked to certify: (i) whether the tenant’s lease is in full force and effect and has not been assigned or amended; (ii) whether the landlord has performed its obligations under the lease; (iii) whether any required tenant improvements or buildout allowances have been provided; (iv) whether there are any claims or defenses which tenant may assert against the landlord; (v) whether rent has been paid more than one month in advance; and (vi) whether a security has been paid.
As noted, the contents of an executed estoppel certificate are conclusive, and bind both landlord and tenant. Black’s Law Dictionary, 572 (7th Ed. 1999); Plaza Freeway Limited Partnership v. First Mountain Bank, 81 Cal. App. 4th 616 (2000). For this reason, tenants should carefully evaluate requested estoppel certificates, and ensure that the terms of any oral agreements with a landlord, or any other material issue regarding the tenancy that is not contained in the lease, gets memorialized. In addition, tenants need to be wary of an over reaching landlord, buyer, or lender who attempts to insert tenant terms or obligations into an estoppel certificate that are not contained in the lease. A tenant who fails to carefully evaluate a proposed estoppel certificate risks being held to such additional terms or obligations at some later date.
A good form that we have used as a model Estoppel Certificate can be found here. If you have questions about estoppel certificates, or any other aspect of commercial leasing, the business lawyers at Pierce & Mandell, P.C. can assist.