Tenant Estoppel Certificates: Giving Buyers Some Peace of Mind

A buyer preparing to purchase commercial property has plenty on his plate. There is an acquisition price to negotiate, financing to obtain, a title search to run and other tasks on a long to-do list that must be completed before a deal can be successfully consummated. However, a purchaser of commercial property that has a current tenant faces an even greater worry. How can the buyer be sure that he and the current tenant share the same understanding of the lease terms? Are there steps a purchaser can take to lower his risk that a tenant will prevail in future litigation if a misunderstanding over the lease terms turns into a messy dispute?

One approach to consider is a tenant estoppel certificate. This type of statement, signed by a tenant for the landlord's benefit, certifies that certain facts regarding the lease are correct and thus "estops" the tenant from later claiming a different state of facts. The purpose of an estoppel certificate is twofold:

• To give a prospective purchaser (or lender) information about the lease and the leased premises
• To give assurances to the purchaser (or lender) that the tenant will not make claims at a later date that are inconsistent with the statements contained in the certificate

When obtaining an estoppel certificate, the purchaser should make sure that the document contains a definitive statement with regard to all basic lease terms, including:

• The rent commencement and expiration date
• The base monthly rent under the lease and any additional payments the tenant makes on a regular basis
• Whether there are any options to extend the lease or expand the premises
• Whether the tenant has received any notice of default under the lease that remains uncured

The beauty of the tenant estoppel certificate for the purchaser is that the tenant is essentially blocked from acting contrary to the statements made in the document. Should a situation arise in which the tenant makes a claim that is contrary to the terms of the tenant estoppel certificate, the new owner can use that document to defend against the claim.

For a buyer walking into a situation as the landlord of a tenant with whom it has no prior relationship or experience, a tenant estoppel certificate can clarify the important terms of the lease and provide a measure of protection from certain future claims by the tenant. It can also give the buyer a greater sense of security and the freedom to focus on other important matters.