Estoppel Certificates

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What is an Estoppel Certificate?

An estoppel certificate is a typical provision in a lease agreement that gives a third party important information on the current relationship with landlord. A prospective buyer of the landlord’s real property would want an estoppel. A lender wants this certificate if they have a secured interest in the property. Typically the landlord obtains the estoppel certificates from their tenants. The certificate is presented to the Buyer during their “due diligence” review of the property. Estoppel certificates are a significant issue for a sale or refinancing. This is because they provide independent verification to the buyer or lender of the cash flow from the tenant’s rent payments.  An estoppel will also aid the buyer or lender identify any lease defaults or disputes with tenants that could cause a problem after closing.

Commercial Retail Leases Estoppel Certificates

Commercial retail leases  have provisions which require the tenant to prepare and sign estoppel certificates. To avoid disputes about the content of the estoppel certificate, they can be attached as an exhibit to a lease. Within the estoppel, the tenant is to certify that as of the date of the document specific terms and conditions are true. They can also specify in some detail why they are not true. Some of these are:

  • Lease commencement date
  • Current terms and options to renew
  • Rent due and when it was last paid
  • If the lease has modifications or assigned
  • Any improvements done for the tenant from the landlord
  • Related payments that are made such as more than one month’s rent in advance

Untrue Statements

A tenant should know that the landlord, purchaser and/or lenders rely on the estoppel certificate. The tenant can be held liable to the third party if the certificate contains untrue statements. When a tenant signs the estoppel certificate, the tenant  prohibits themselves from taking a position contrary to information in the certificate. If the tenant(s) say something that is not accurate, the tenant(s) may be giving up the right to contest it at a later time