Considered boilerplate, lease provisions addressing
estoppel certificates are often glossed over during negotiations
(or ignored entirely). However, estoppel certificates are important
documents in the event a Landlord wants to sell or finance its
property. With a bit of consideration during lease negotiations,
estoppel clauses can meet a landlord's needs without being an
undue burden to its tenant.
The primary function of an estoppel is to provide a lender or
prospective purchaser factual information to which it may not
otherwise have access absent solely relying on the assertions of
the landlord. Unlike other real property documents like mortgages
that can be obtained by public record, leases and the information
they contain are generally not available to the public. Further,
lease terms are often altered over time either intentionally by a
written amendment, or unintentionally through the conduct of the
parties. Finally, a lease may not contain all of the information a
lender or prospective purchaser requires, such as in the instance
of a commencement date which is determined after the lease
execution by the happening of an event (i.e., completion of
construction build-out).
From a Landlord's perspective, it is important to ensure that
its tenants execute and deliver estoppel letters in a timely
manner, as a loan or sale closing may be continent upon receipt.
Tenants do not want to be bound to execute a future document whose
content is unknown, particularly if faced with a lease default for
failure to do so. Although these two positions may appear to be in
conflict, by working together parties should find resolution
through crafting a provision that delineates, to the extent
possible, the information that will be contained in the estoppel
certificate, limits the queries to statements of fact and
establishes clear delivery requirements.
Typical items required in an estoppel certificate include the
commencement and expiration of the lease term, any options to renew
the lease, the amount of rent and additional rent currently being
paid, the amount of any security deposit paid, whether the tenant
has any rights of first refusal or purchase options, whether
contingencies, conditions and obligations of landlord under the
lease have been satisfied and whether any defaults exist. An
estoppel may also be the appropriate instrument to confirm or
disclose any additional relevant factual information about the
tenant, such as its financial health, ownership structure or
involvement in litigation. Finally, the estoppel should, in every
case, clearly establish all of the documents comprising the lease,
whether by specifically listing each document or attaching them as
an exhibit to the estoppel. If the estoppel certificate is limited
to factual inquiries such as those stated above, tenants are less
likely to need extensive legal review and negotiation prior to
execution and thus are more likely to agree to shorter delivery
windows.
Spending a bit of time up front during lease negotiations to
discuss and clearly define the expectations related to an estoppel
certificate is ultimately beneficial to all parties. Lenders and
prospective purchasers receive important information from an
uninterested party. Tenants need only provide easily obtainable or
known factual information within a reasonable time. Landlords spend
less time acting as a go-between and can focus on the other
transaction documents.
This article is presented for informational purposes only and is not intended to constitute legal advice.
