ESTOPPEL CERTIFICATE INFO.

Estoppel certificates are typically utilized when a landlord desires to sell a building or refinance it. When purchasing a building or making a loan with a building as collateral, the purchaser and lender want to confirm certain facts that could influence their decision:


Is the tenant:
a. Current in rent?
b. In default under the lease?
c. Claiming that landlord is in breach or default under the
lease?


Does the tenant:


a. Purchase the building?
b. Renew or extend the lease?
c. Expand its space?
d. Terminate the lease?
e. Contract its space?


What is the rental rate?


Has there been any prepaid rent?


Is there any remaining free rental periods?


Confirm:
a. Commencement date of the lease,
b. Expiration date of the lease, and
c. Length of the lease term.



While it is typically the landlord that initiates the request for an estoppel certificate to be signed by a tenant, sophisticated tenants bargain for a reciprocal right to obtain an estoppel certificate from the landlord. By bargaining for the right to require the landlord to provide an estoppel certificate, the tenant will be in a position to provide prospective merger partners, assignees, subtenants, and major lenders the level of comfort of knowing that a lease remains in a pace and confirmation of the material facts of the lease. The ability to require a landlord to also fill out and submit an estoppel certificate aids the tenant in negotiating what is contained in an estoppel certificate. For example, once a landlord knows that it too will be required to submit an estoppel certificate, the landlord is much more realistic about the time periods for responding to a request for an estoppel certificate.


Illegitimate Intended Purpose


Frequently, in connection with a potential purchase of a building or in connection with making a loan on a building, the purchaser or lender will review the existing leases and find that there are certain provisions that the purchaser or lender would have preferred to have been included in the lease. These typically will include provisions pertaining to:
ü Extended cure rights for the landlord,
ü Terrorist insurance requirements,
ü Telecommunications.
ü Use of insurance proceeds, and
ü Condemnation proceeds.


Most lawyers believe that it is not appropriate to seek modifications to a lease in connection with an estoppel certificate.


The purpose of the estoppel certificate is to confirm the existence or certain rights and obligations, not to change such rights and obligations. Nevertheless, there are a few landlords, probably at the urging of their lenders or purchasers, who cannot resist the temptation to utilize the request for an estoppel certificate as a disguised attempt to modify the rights and obligations of the terms under the lease. Sophisticated tenants are aware of this tactic and simply delete provisions that constitute a modification and a waiver of significant rights of the tenant.


Do not assume that the initial draft of the estoppel certificate has been carefully drafted or is correct.


Responding correctly to the estoppel certificate:


The only way to property review an estoppel certificate is simply to take each item in the estoppel certificate that is set forth as a fact and look to the lease (and all amendments) to find where each fact is set forth in the lease.


Resist the temptation to vent or get even.


The only purpose of an estoppel certificate is to allow the sender to confirm the existence of the lease and the essential provisions of the lease. Occasionally, a tenant with a vivid imagination or a hidden agenda (e.g. too much space at above market rents) will try to gain leverage with the landlord by responding to the estoppel certificate with statements that are either not factual or embellished.


Do not procrastinate.


Most leases have a time period to respond to an estoppel certificate."

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