What is an estoppel certificate and why am I being asked to sign one?
An estoppel certificate is a document that a party signs (and possibly has notarized) which certifies (among other things) that a lease is in effect and that the tenant has paid rent through a date certain. It may also include a certification as to the amount of any security deposit, the expiration date of the lease and/or whether the the other party is in default under the lease.
Landlords typically require an estoppel certificate from its tenant(s) in connection with obtaining a mortgage or selling the property. When a landlord requests that a tenant complete, sign and/or notarize an estoppel certificate, it is important for the tenant to closely review the estoppel certificate to confirm it is accurate. An estoppel certificate may typically be relied upon by the landlord, a potential lender and a potential purchaser. If there is anything inaccurate contained in the estoppel certificate, a person or entity that relied on it can bring a claim against the person or entity that signed the estoppel certificate. Further, if there are any statements contained in the estoppel certificate that are inaccurate and harm the tenant, the estoppel certificate can be used against the tenant by the landlord or any subsequent purchaser. The best practice is to have a commercial leasing attorney review your lease and any other lease documents (amendments, commencement date or rent commencement date notices, etc.) to determine whether the statements are accurate.
Tenants may also request that the landlord sign an estoppel certificate in connection with the tenant’s attempt to obtain financing or to sell its business. One issue for a tenant to be aware of is if the landlord is not required to complete an estoppel certificate under the lease, then the tenant has little to no recourse should the landlord refuse to sign it or refuse to sign it by a date certain or impose a condition before agreeing to sign it. Landlords who sign an estoppel certificate should also carefully review it to confirm its accuracy as any inaccuracies may result in the tenant, the tenant’s lender or tenant’s purchaser bringing a claim against the landlord or the estoppel certificate being used against the landlord should a statement in the estoppel certificate harm the landlord.