Estoppel certificates are documents that establish facts that the signing party then cannot contradict. Estoppel certificates are very common when dealing with commercial property. In the commercial property context, estoppel certificates are relatively simple documents that request a tenant to provide/verify some important information about its lease. The information normally includes (but is not limited to): the commencement and termination date of the lease; the monthly rent; the date the last rent payment was made; the amount of the security deposit; that the lease is currently in effect; and that the tenant and the landlord are not in default.
The purpose of estoppel certificates is to have a tenant provide express statements about the current status of the lease so that the tenant doesn’t later claim a different set of facts. This benefits lenders, buyers, and the current property owner.
Estoppel certificates are often required by lenders as a condition to closing a loan, whether as a refinance or as a loan to purchase the property. Also, buyers of the property usually require estoppel certificates for their own protection, besides their lender likely requiring them for purchase loan.
Lenders usually have a form estoppel certificate, but the form may be modified to fit the particular situation. The form of an estoppel certificate required when commercial property is being purchased is generally set forth in the purchase and sale agreement.
The landlord is responsible for obtaining estoppel certificates for a buyer and/or a lender. As such, it is important to include a provision in each lease (and most leases have this provision) stating that the tenant agrees to execute estoppel certificates within a certain number of days after a landlord request and to include the information that tenant agrees to provide/verify upon such a request.
As a practical matter, many times the process of obtaining an estoppel certificate is a time for the tenant to “audit” whether the provisions of the lease are or have been followed. Many times a tenant will identify that it has overpaid and requires a reimbursement before executing an estoppel certificate. Although instances of over or under payment are identified and one of the parties to the lease is not pleased, this process serves as a useful method of ensuring that the terms of the lease are being followed.
Please contact Bill Humphries or another attorney at MPBA for your leasing needs, whether as landlord or tenant.