estoppel vs assignment of lease

Estoppels and SNDAs—Understanding and Negotiating the Landlord’s Lender’s Lease Documents

By G. Andrew Gardner, Hannah Dowd McPhelin, and Joseph M. Saponaro  

G. Andrew Gardner is senior counsel at Walter Haverfield LLP in Cleveland, Ohio, and co-chair of the Section’s Leasing Group.Hannah Dowd McPhelin is a partner at Troutman Pepper in Harrisburg, Pennsylvania, vice chair of the Section’s Leasing Group, and chair of the Emerging Issues and Specialty Leases Committee. Joseph M. Saponaro is a partner and chair of the real estate group at Meyers, Roman, Friedberg & Lewis in Cleveland, Ohio, and chair of the Section’s Retail Leasing Committee. 

Lawyers who represent lenders, commercial landlords, or commercial tenants need to understand the leasing documents required by lenders to landlords. This article provides an overview of such documents, which usually include tenant estoppel certificates and subordination, nondisturbance and attornment agreements, with sample document forms. 

A Brief Overview of a Lease Transaction 

Simply stated, a lease is the grant by one party (Landlord) to another party (Tenant) of a possessory interest in an estate in land (whether vacant land, an entire house or building, or a portion of a building). In the majority of commercial leases, the Landlord has obtained a loan from a bank or other lender (Lender or Mortgagee) who will be taking a security interest in the property owned by the Landlord, as well as an assignment of the Landlord’s interest in the leases of the property and the rental income derived from the leases and the property as collateral to secure the Landlord’s payment of the loan. The Tenant’s rent payments are part of the income stream the Landlord will use to repay the loan to the Lender. 

The Lender made the loan to the Landlord to facilitate the Landlord’s acquisition, development, or redevelopment of property. As part of the terms and conditions of the Lender’s security documents with the Landlord—typically a loan agreement, mortgage, or deed of trust (mortgage), and assignment of rents and leases—there will be certain restrictions and requirements regarding leasing of the property. These requirements can include requirements that the Lender approve any leases of the property by the Landlord. In the case of large commercial or industrial properties, the Landlord’s approval may include approval of the Tenant, including the Tenant’s creditworthiness, and the terms and conditions of the lease. In the case of multifamily leases or leases of smaller spaces in a large facility, the requirement may only be that the Landlord use a form that has been pre-approved by the Lender (allowing minimal changes as may be negotiated by the parties) and that the lease be on market terms (set forth in the loan documents or calculated by the terms of the loan documents). Additionally, the loan documents may restrict the right of the Landlord to amend, modify, terminate, or extend the term of leases without the Lender’s consent. 

In most loan documents for commercial properties, there will also be a requirement that all leases of the property be subordinated to the Lender’s liens created by the Security Documents. Why does this requirement exist? A lease creates a possessory lien in favor of the Tenant (the priority of the lien will depend upon the lease terms and date that the Tenant obtained possession of the leased premises). The lien of the Lender’s Mortgage will establish a Lender’s lien on the property and provide the Lender with priority upon filing. Lenders require that the Tenant’s possessory lien be subordinated so that in the event 

that the Lender ever forecloses on the property, the Lender’s superior lien can be used to terminate any subordinate liens (including the Tenants’ rights to possession under their leases). Lenders typically require that the Landlord’s lease form expressly state that the Tenant’s lien is automatically subordinated to the lien created by the Mortgage held by any first mortgagee. 

A typical Mortgage provision may provide as follows: 

Mortgagor shall comply with and observe Mortgagor’s obligations as landlord under all leases of the Property or any part thereof. Mortgagor, at Lender’s request, shall furnish Lender with executed copies of all leases hereafter made of all or any part of the Property. Unless otherwise directed by Lender, all leases of the Property shall specifically provide that such leases are subordinate to this Mortgage; that the tenant under any lease attorns to Lender, such attornment to be effective upon Lender’s acquisition of title to the Property; that the tenant agrees to execute such further evidences of attornment as Lender may from time to time request; and that the attornment of the tenant shall not be terminated by foreclosure. 

Lenders may also include reservation of the right to not subordinate a Tenant’s lien to Lender’s lien. 

Subordinated liens may be terminated upon a foreclosure of the Property by the Lender (allowing Lender to deliver vacant possession). Depending upon the property and creditworthiness of the Tenants, the Lender may want the leases to continue in the event that the Lender is forced to exercise its remedies under its loan documents (including foreclosing upon the property or taking a deed in lieu of foreclosure to take the Landlord’s ownership interest in the property). As noted in the sample provision above, most commercial lenders also require that all leases contain a covenant that the Tenant agree to attorn to (or recognize and accept) the Lender as a successor landlord if the Lender forecloses upon Lender’s mortgage interest in the property. When a Landlord is obtaining a new loan, either to acquire or refinance a property, in some cases Lenders may require subordination agreements only from Tenants who have placed their leasehold interest of record (by recording a memorandum of lease), and in other cases Lenders may require subordination agreements from the major Tenants of the property (which can be defined in many ways, but often by the major Tenant’s square footage). 

In addition to the subordination and attornment requirements, the Lender will typically include a requirement that the Landlord periodically obtain confirmation from its Tenants of certain matters related to the Lease. In particular, these items are the key financial terms of the Lease that the Lender used to underwrite its loan to the Landlord. This confirmation typically is made by requesting that the Tenants execute certificates in favor of the Lender, with the understanding that the Lender is entitled to rely upon all statements made in the certificate and that each Tenant will be estopped from asserting different facts in the future after confirming them in an estoppel certificate to the Lender. The confirmations most often included in estoppel certificates are those that are critical to the underwriting of the Lender’s loan to Landlord: (i) the length of the lease term, (ii) the amount of Tenant’s monthly rent payment, (iii) confirmation that payment of rent has commenced, (iv) confirmation of any termination rights, and (v) confirmation that neither the Landlord nor the Tenant is in default under the lease. Depending upon the circumstances, in some cases, Lenders will require estoppel certificates only from certain major Tenants, and in other cases, Lenders may require estoppel certificates from the major Tenants and a certain percentage of remaining Tenants, based on the number of tenants or rentable square footage. 

In addition to the subordination provisions and estoppel certificate, the Lender typically will require that the Landlord reject payments under the lease more than one month in advance. This is necessary to protect the Lender’s income stream in the event of foreclosure.

As noted above, the Lender’s Mortgage will have certain requirements with respect to the Landlord’s lease. A typical lease provision for subordination and attornment provides: 

Landlord and Tenant covenant and agree that this Lease and any and all renewals, modifications, extensions, amendments, and restatements hereof are subject and subordinate to any security instrument, including, without limitation, any mortgage or deed of trust (Security Instrument), which may now or hereafter be placed upon or affect the Real Property and the Project in which the Leased Premises is located, provided that the holder(s) of such Security Instrument shall agree in writing not to disturb Tenant’s possession of the Premises or Tenant’s rights under this Lease so long as Tenant is not in default hereunder (subject to any applicable notice or cure periods granted to Tenant). In the event that a Successor Landlord, as defined below, receives title to the Real Property, (i) such Successor Landlord shall be bound to Tenant under all of the terms and conditions of this Lease, (ii) Tenant shall recognize and attorn to Successor Landlord as Tenant’s landlord under this Lease, and (iii) this Lease shall continue in full force and effect, in accordance with its terms, as a direct lease between Successor Landlord and Tenant. This clause shall be self-operative, and no further instrument or subordination shall be necessary. For purposes of this Lease, the term “Successor Landlord” shall mean any party that becomes owner of the Real Property, whether pursuant to (i) a foreclosure under the Security Instrument or any mortgage or deed of trust, (ii) any other exercise or the rights and remedies of the holder of the Security Interest, or (iii) delivery by Landlord to the holder of a security interest of a deed in lieu of foreclosure or any of the foregoing. 

A typical lease provision for estoppel certificates provides: 

From time to time during the Lease Term, within fifteen (15) days of receipt of Landlord’s written request, Tenant shall acknowledge, execute, and deliver to Landlord, the holder of any Security Instrument, or any other persons whom Landlord may designate in such request, a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications hereunder, that the same is in full force and effect as modified and stating the modifications) and, if so, the dates to which the Rent and any other charges have been paid in advance, and such other items requested by Landlord, including, without limitation, the lease commencement date and expiration date, rent amounts, and that no offsets or counterclaims are present. It is intended that any such statement delivered pursuant to this Paragraph may be relied upon by any prospective purchaser or holder of any Security Instrument (including any assignee of the foregoing) encumbering the Premises. 

Subordination, Nondisturbance, and Attornment Agreements 

A subordination, nondisturbance, and attornment agreement, typically referred to as an SNDA, is an agreement among the Landlord, the Tenant, and the Lender who has (or will have during the loan or lease term) security with respect to the property leased between Landlord and Tenant. As noted above, SNDAs are generally required by a Lender as a condition precedent in closing a commercial loan transaction with the purpose of subordinating the rights of the Tenant under its lease so that Lender has a superior lien in the property. In exchange for the Tenant’s agreement to subordinate, the Tenant requests that the Lender agree not to disturb the Tenant’s leasehold in the event that the Lender has to foreclose its superior lien interest in theproperty (the “nondisturbance” provision of the SNDA). 

Diving deeper into an SNDA requires a review of each of its components. 

Subordination Provision: This provision covers the subordination of the Tenant’s rights under its leasehold to the lien rights of the Lender created through the Security Documents. In the event of a Landlord’s 

default under the terms and conditions of the Security Documents, the Lender is granted the first lien position to protect its interest in the Property. The subordination of the Tenant’s rights under a lease may be created by Security Documents that are recorded either before or after the Tenant’s leasehold interest takes effect. As such, in a case where the Tenant enters into a lease after the Security Documents have been recorded, then the Lender may be able to terminate the Tenant’s rights under the lease at foreclosure. By contrast, if the Tenant enters into a lease before the Security Documents have been recorded, then the Lender may have a difficult time terminating the Tenant’s rights under the lease at foreclosure—many jurisdictions agree that foreclosure against the Landlord does not affect the Tenant’s rights under the lease. We are focusing on leasing subordination in these materials; however, other types of subordination include debt subordination as well as property interest subordination, both taking place in the commercial financing setting. 

Nondisturbance Provision: This provision pertains to the agreement between the Lender and the Tenant that the Lender will not terminate the Tenant’s subordinate rights under the lease, including the Tenant’s possessory rights, at foreclosure. Generally, this is with the caveat that the Tenant must not be in default under the terms and conditions of the lease at the time of foreclosure. If the Tenant is not in default under the lease at the time of foreclosure, then the Tenant’s rights under the lease shall be fully recognized. Nondisturbance can also take place in the context of a sublease, whereby the subtenant’s rights under the sublease will not be disturbed if the master lease is terminated by the master landlord because of default by the master tenant (sublandlord). One caveat: If the Tenant is an affiliate of the Landlord, the Lender may not be willing to agree to a nondisturbance provision (resulting in a subordination and attornment agreement). 

Attornment Provision: In this provision, the Tenant covenants with the Lender that, in the event of a foreclosure, the Tenant’s rights under the lease will not be terminated and the Tenant agrees to recognize that the Lender, who would not otherwise be in privity with the Tenant, may enforce the lease as though the Lender were the original party to and beneficiary of the lease, and the Tenant and the Lender will be bound thereby. 

The Lender derives benefits from a standard SNDA, which include the following: leasehold liens remain subordinate to the Lender liens until such Lender liens are released; the Tenant will attorn to the Lender as the new landlord upon the Lender or any successor or nominee acquiring the property; the Lender is not liable for any of the Landlord’s defaults under the lease, leasing concessions, and common area maintenance reconciliations, unless as expressly set forth in the SNDA; and the Tenant will not exercise certain rights under the lease until the Lender has had an opportunity to cure the Landlord’s defaults. 

There are other considerations in negotiating an SNDA: the Landlord and the Tenant under the lease that is the subject of the SNDA subordination maintain each of their respective rights under the lease, however modified by the SNDA. Some typical requested covenants in the SNDA that can function as lease modifications (or restrictions on the Landlord and the Tenant) are as follows: 

1. The SNDA may restrict any amendment, restrictions, and terminations under the lease by requiring the Lender’s consent in each such case, and failure to obtain such consent may render any such amendment, restrictions, and terminations null and void or not require the Lender to be bound if the Lender exercises its rights under the SNDA. 

2. The SNDA should require that the Tenant pay future rent to the Lender without Landlord approval and without the Tenant being required to make a default determination by the Landlord. Further, the Tenant should receive full credit for such future rent payment.

3. The SNDA should contain language that enables the Lender to step into the shoes of the Landlord in the event of the Tenant’s default under the lease and to exercise all rights and remedies under the lease. 

4. The SNDA should require the Tenant to provide notice to the Lender in the case of the Landlord’s default and to allow the Lender to cure such default after the applicable notice and cure period set forth in the lease, thus providing an expanded right for the Lender to protect the Lender’s collateral and income stream. 

5. Many SNDAs contain provisions that mimic the language in the estoppel certificate to confirm the Tenant’s representations of the current status of the lease. 

A sample form of SDNA appears at the end of this article. 

Estoppel Certificate 

From the Tenant perspective, estoppel certificates are important because they can have significant legal consequences, but they can be easily overlooked. Once a Tenant executes and delivers an estoppel certificate, the Tenant is “estopped” or prohibited from asserting a position to the contrary of any of the statements in the estoppel certificate. Estoppel certificates take various forms, but typically they are a series of statements that provide a snapshot of a lease at the time the estoppel certificate is given by confirming certain facts regarding the lease and the Tenant’s occupancy of the property that a Lender requires. 

There are several things Tenants must consider when completing an estoppel certificate. As a threshold matter, the Tenant should be clear who the estoppel certificate will be in favor of—usually it is the Landlord, the Lender, and successors and assigns of both. As a second preliminary matter, the Tenant must carefully consider each statement it is requested to make in the estoppel certificate. 

First, the estoppel certificate will identify all of the lease documents by title, names of parties (original parties and any assignees), and date. All lease documents, including amendments, letter agreements, guarantees, waivers, assignment and assumption agreements, and similar transfer agreements, should be identified and included. If the Tenant has assigned the lease or sublet any portion of the premises, it should be disclosed here as well, with the applicable documents described in the estoppel certificate. The Lender often requires that copies of all lease documents be attached to the estoppel certificate and that the estoppel certificate confirm that the attached lease documents are true, complete, and correct copies in all respects. 

Second, the estoppel certificate will confirm that the lease term has commenced (or if it has not yet commenced, confirm when it will commence based on the occurrence of certain events), together with the length of the initial lease term and any renewal terms that are available. If the Tenant has an early termination right or similar right that could shorten the term of the lease, this will likely need to be disclosed in the estoppel certificate as well. It will likely also confirm the rent commencement date and that the Tenant is paying rent pursuant to the lease documents if the rent commencement date has occurred. Another statement that some Lenders have included since the shutdowns that resulted from the COVID-19 pandemic include “Tenant has not, as of the date hereof, requested rent relief from the Landlord and does not anticipate asking for rent relief.” 

Third, the estoppel certificate will confirm the size and location of the leased premises. It is best here to be as specific as possible in describing the leased premises by using a suite number or any similar designation for the space.

Fourth, the estoppel certificate will state the material economic terms of the lease. It will state the current monthly base rent as well as monthly installments of additional rent, such as common area maintenance charges, operating expenses, and real estate taxes that the Tenant is paying. As noted above, it is important to the Lender that rent not be paid more than one month in advance, and the estoppel certificate will likely have a statement to this effect. The estoppel certificate may also request that the Tenant confirm any increases in base rent amounts that will occur at later points in the lease term. The Lender will also want the estoppel certificate to recite the amount of any security deposit paid, the form of security deposit (cash or letter of credit), and whether, to the Tenant’s knowledge, any portion of the security deposit has been applied by the Landlord. 

Fifth, the Lender will require statements in the estoppel certificate as to whether there are any defaults by either the Landlord or the Tenant that are then continuing. These types of statements typically include confirmation from the Tenant that all obligations of the Landlord with respect to concessions (i.e., leasing incentives such as free rent and tenant improvement allowances) have been paid in full and that the Tenant does not have any offsets or deductions against rent available to the Tenant. As the Tenant, it is appropriate to add a knowledge qualifier (i.e., to the Tenant’s knowledge) to the beginning of these statements regarding defaults, offsets, and deductions to protect the Tenant in the event that there is a default, offset, or deduction the Tenant is not aware of; otherwise, the Tenant may be deemed to have waived these matters. 

Finally, the Tenant should be careful with respect to additional statements in the estoppel certificate beyond confirmation of the facts above (such as representations regarding any potential environmental issues) or agreements that could provide the recipient of the estoppel certificate with additional rights. For example, the estoppel certificate may include a fairly straightforward statement such as “So long as the obligations are outstanding, Lender or its designee may enter upon the property to visit or inspect the property.” This statement permits the Lender to inspect the property without restriction when, before the estoppel certificate, such rights would have been subject to any terms and conditions in the Tenant’s lease. 

As a best practice, once you have reviewed and revised an estoppel certificate to be accurate based on the lease documents, you will need to have your client review and confirm each statement as well to ensure that the Tenant provides an accurate picture of the lease and does not waive any of its rights. Further, make sure that every blank in the estoppel certificate is completed and use “Not Applicable” or a similar designation where needed. If the estoppel certificate will be returned along with an SNDA, the Tenant may want to include a notation on the estoppel certificate that it is not valid unless and until the Tenant receives back a fully executed SNDA. 

A sample form of estoppel certificate appears at the end of this article. 

Conclusion 

Lawyers need to understand the basic requirements of Lenders to Landlords with respect to tenant estoppel certificates and SNDAs and the provisions that need to be included in such documents. 

Published in Probate & Property: Volume 35, Number 5, ©2021 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

Estop, Subordinate and Listen: Understanding the Role of SNDAs and Tenant Estoppel Certificates in Commercial Real Estate Transactions

For those of us that practice in the world of commercial real estate financing transactions, the fact pattern is a tale as old as time: the Bank is making a term loan secured by real estate largely based on leases on the property generating sufficient rent for the owner/borrower to service the loan and adequately maintain and operate the real estate, which already is fully occupied and leased to commercial tenants. Perhaps some of the leases are subject to a memorandum of lease that has been recorded in the real estate records of the clerk’s office in the jurisdiction in which the real estate is located. The Bank’s loan will be secured by a standard Deed of Trust and Assignment of Rents.

The Bank is trying to determine whether to require the owner/borrower to obtain a subordination, non-disturbance and attornment agreement (an “SNDA”) from each of the tenants, or whether a tenant estoppel certificate will suffice. In order to analyze that question, we must understand the distinction between an estoppel and an SNDA, as well as what protection the SNDA is going to provide the Bank that is not afforded by the Deed of Trust and Assignment of Rents.  

An estoppel certificate is a representation as of a particular moment in time as to the status of the lease. It does not contain any ongoing obligations and/or covenants by the tenant or the Bank, but rather just certifies as to certain facts and circumstances as of the date of execution. The estoppel certificate may confirm items such as: (1) the named tenant is the current tenant under the lease; (2) the lease is in full force and effect; (3) no default has occurred under the lease; (4) no advance rent has been paid; (5) the tenant has no charge, lien or claim of offset under the lease; and (6) there are no bankruptcy proceedings pending against the tenant. The purpose of the estoppel certificate is limited in scope: first, it gives the Bank comfort that it is not financing a property that is subject to a slew of landlord defaults or problem tenants, and second, it prevents – or estops – the tenant from trying to impose any liability on the Bank for a pre-existing default under the lease that was not disclosed to the Bank prior to loan closing. As estoppel certificates only speak as of the date of they are signed, the Bank should be sure to obtain them at or just prior to closing (generally no more than 30 days in advance). In addition, the Bank should get an estoppel certificate even if it is also getting an SNDA from a tenant (although sometimes the estoppel provisions might be built into the SNDA itself so that the tenant only has to deliver one document for closing).

The critical components of an SNDA are as follows:  

• Subordination of Lease – the “S” in SNDA .  First and foremost, an SNDA subordinates the lease and the rights of the tenant under the lease to the lien and rights of the Bank under the Deed of Trust. The Bank will be senior to those tenants who otherwise would have a senior and superior interest because of a previously recorded memorandum of lease.  This enhances the ability of the Bank to take control of the real estate if problems arise with the loan.
• Attornment of Tenant to the Bank – the “A” in SNDA .  If the Bank has to foreclose on its Deed of Trust and becomes the owner of the property, the tenant agrees to “attorn” to (i.e., agree to be a tenant of) the new owner as the landlord even though, but for the SNDA, the tenant might not be legally obligated to do so.  This provision also can protect the new owner as landlord from obligations and liabilities the original owner might have incurred that, but for the SNDA, could have become obligations and liabilities of the new owner. For instance, the Bank will want to ensure that it is not liable for any acts or omissions of any prior landlord, subject to any offsets or defenses that the tenant might have had against a prior landlord, liable for the return of any security deposits not actually received by the Bank, or bound by any accelerated rent payments or modifications to the lease terms made without the Bank’s consent. These liability limitations are a common point of negotiation between the tenant and the Bank, as the tenant may seek to expand the conditions under which the Bank would have additional liability to the tenant, and the Bank will of course want to keep those conditions as limited as possible.
• Non-Disturbance of Tenant – the “ND” in SNDA .  It’s important to recognize that the SNDA is not a unilaterally beneficial document that solely protects the Bank. The tenant gets an important protection as well in exchange for its agreement to subordinate and attorn to the Bank in the form of the nondisturbance provision, which provides that, so long as the tenant does not default in the performance of its obligations under the lease, the Bank will not terminate, disturb or otherwise adversely affect the rights of the tenant under the lease, including the right to possession and enjoyment of the leased premises. In addition to the core “S”, “A” and “ND” provisions, there are several other important protections that might be afforded under an SNDA:
• The Bank’s Right to Collect Rent .  Although the Deed of Trust and Assignment of Rents give the Bank the right to collect the rent directly from the tenant, the tenant is not a party to those instruments and could take the position the tenant has no obligation to pay rents directly over to the Bank. The SNDA provides a direct, contractual relationship between the tenant and the Bank. When the tenant signs the SNDA and agrees that the Bank has the right to directly collect the rents, the tenant no longer can take a contrary position on that point.
• Notice of Default/Right to Cure . The Bank will require the tenant to give notice to the Bank of any default by the owner/borrower under the lease and provide that the Bank shall have the right (but not the obligation) to cure that default in order to preserve the lease if the Bank decides it does not want to lose the tenant, such as an anchor tenant. This is a critical provision because it prevents the tenant from terminating the lease without the involvement of the Bank.
• No Modification of the Lease without the Bank’s Consent .  The SNDA will also provide that the tenant is prohibited from agreeing to modifications of the lease with the owner/borrower without the Bank’s prior written consent. Again, this is a common point of negotiation between the tenant and the Bank, as the Bank will want a broad scope of modifications that would require Bank consent, and the tenant will want to narrow the scope of modifications that for which it needs the Bank’s approval.
• Agreements Regarding Rent Prepayments . The Bank will want to ensure that the tenant agrees not to prepay rent more than one month in advance, to avoid a situation in which the tenant front-ends a significant amount of the rent payments, which would then jeopardize the ability of the owner/borrower or the real estate itself (after a foreclosure by the Bank) to service the debt and repay the loan. 
• Insurance and Condemnation Proceeds . The SNDA may provide further clarification regarding the Bank’s and tenant’s respective rights in any proceeds of hazard insurance carried by the owner/borrower on the leased premises or any condemnation proceeds with respect to the leased premises. The best case scenario is that the SNDA will clarify that any rights the tenant has in such proceeds will be subject to the rights of the Bank under the Deed of Trust to take and apply those proceeds against the loan – however, this is a point that can be subject to heavy negotiation from the tenant.
• Subordination of Rights of First Refusal or other Options . Though the SNDA will of course contain an umbrella subordination of the terms of the lease to the terms of the Deed of Trust, if there is an express right of first refusal, right of first offer, or purchase option in the lease, the SNDA should clearly address that right and clearly subordinate it to the Bank’s lien under the Deed of Trust – the Bank does not want a first refusal right in favor of the tenant to delay its foreclosure process or potentially diminish the marketability of the property.
• Recordation of the SNDA . If the underlying lease (or a memorandum thereof) is recorded in the land records, then the Bank will absolutely need to record the SNDA as well – this is what gives the Deed of Trust lien priority over the lease, and prevents the lease from being a B-II exception in the Bank’s mortgagee policy of title insurance.

The foregoing provisions and the other provisions of the SNDA not only protect the Bank during its involvement with the real estate as a lien holder or as an owner through foreclosure or deed-in-lieu thereof, but also protects any third party succeeding to ownership of the real estate though the Bank’s foreclosure or subsequent sale of the real estate. In addition to creating a predictable set of rights and remedies between the Bank and the tenant – which is always critical in a default or workout environment – it can also enhance the marketability of the real estate to third parties knowing they will have the benefits of the SNDA. As a general rule of thumb, the Bank should strongly consider getting SNDAs with respect to all major commercial leases for which the rental income factors into the underwriting decision and approval of the loan.

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What is an estoppel certificate in a commercial lease, and why is it required?

On Behalf of Lanard and Associates | Aug 4, 2016 | Firm News

An estoppel certificate is a statement signed by a tenant that a commercial lease agreement exists, that specific facts of the agreement are valid, that no defaults exist and that they agree to pay rent on a particular date to the landlord. In short, it outlines the nature of the relationship between the landlord and tenant.

Commercial landlords typically require tenants to provide an estoppel certificate upon request as a “due diligence” item. For instance, the landlord may need to prove to a lender, investor or potential buyer of the entire site that the terms of the lease with the tenant are enforceable and that the tenant is current in all financial obligations. This is then relied upon by the landlord’s lender or potential buyer to validate that all the anticipated rents that the landlord has said are deposited monthly will be deposited and that the term of the lease will be in place for the specified time period.  By signing the document, the tenant is essentially verifying the conditions and status of the lease.

Facts contained in an estoppel certificate

Estoppel certificates define the type of lease in question, detail any amendments, and provide a statement that no other modifications can be made. While the items required in these documents vary, here are some standard components generally included:

• The dates when the lease begins and ends
• The rent amount and due date
• Statements from the tenant and landlord that no defaults exist
• If defaults occur, specifics are required
• Confirmation that the lease is in effect and contains no modifications
• If modifications exist, they must be spelled out
• Verification that the tenant may lease or use other space in the building
• Security deposit amount and interest rates
• Contact information for tenant, including physical addresses, email addresses and phone numbers

While these items represent a logical starting point, specific details and terms differ widely depending upon the nature of the lease. That’s why it is advisable to consult an experienced commercial lease attorney before signing a commercial real estate lease agreement .

How are all parties protected?

An estoppel certificate gives landlords, investors and lenders additional security that the tenant’s promises will be kept. They also benefit tenants as the document confirms that the landlord will not change any agreed-upon terms to the lease.

If your landlord is negotiating with a potential buyer for the property, the estoppel certificate is part of the buyer’s due diligence to ensure continued cash flow and identify and confirm the lease terms. Having that assurance helps them avoid unforeseen expenses and liabilities.

The document also contains details on future lease renewals or extensions. It can also identify red flags, such as whether either party has breached any responsibilities or given up any rights over the duration of the lease. Without a signed estoppel certificate, a potential buyer of the site from the landlord will not have written confirmation that the leases with all the tenants at the site and the rents will continue.

What happens if the tenant doesn’t sign or return an estoppel certificate?

Most standard commercial leases include a provision that the tenant must complete an estoppel certificate and return it to the landlord within a short amount of time, such as 15 days. The lease also states what information must be provided in the certificate. If the tenant does not return the document by the deadline, some leases allow a landlord to:

• Complete the estoppel certificate themselves as the tenant’s “attorney-in-fact.”
• Deem the tenant’s failure to return the document as an admission that everything stipulated in the certificate is correct, or “silence is consent.”
• Collect a specified monetary penalty from the tenant.

In most cases, tenants obligated to sign an estoppel certificate under the lease terms must do so to avoid a landlord pursuing legal remedies. However, tenants are generally not required to sign an estoppel certificate if no such provision exists in the lease.

Tenants may also be reluctant to sign the document when they have legitimate disputes with landlords. This can occur when tenants believe the landlord has failed to live up to their responsibilities under the lease agreement. In these cases, it is often better for landlords to negotiate a resolution with the tenant as it is not to their benefit to submit estoppel certificates to lenders or prospective buyers that contain alleged defaults or failures on their part.

Finally, a tenant’s objection may result from the type of form the landlord provides for the estoppel certificate, preferring to use their own version. This can happen when the tenant is a franchisee of a large retail or business chain that prepares its own documents and wants to avoid forms provided by others. In these cases, landlords should ask the lender or potential buyer if the tenant’s form is acceptable. If not, the parties will likely need to negotiate.

Commercial tenants must do their due diligence as well

For tenants, estoppel certificates usually highlight significant facts contained in the lease agreement. This information includes the start and end dates of the lease, options and deadlines to renew or extend, the amount of rent and how it is calculated, whether rent payments are up to date, along with many other vital facts.

Lenders and prospective buyers rely on this information to set a purchase price for the property, negotiate other key terms and calculate the short- and long-term benefits of the arrangement. The estoppel certificate, in many ways, provides a foundation for the relationship between you and your current as well as any future landlord.

It is essential to seek an experienced commercial lease attorney to determine the facts included in an estoppel certificate, the accuracy of the information and for drafting the correct language to protect you and your business.

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Estoppel Certificates

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What is a Tenant Estoppel Certificate (also referred to as an Estoppel Agreement, Rental Information Questionnaire, or Tenant Rental Information Declaration)?

When a landlord places a rental property up for sale, the real estate agent or landlord will often request that the tenants in the building complete and sign a document called an Estoppel Certificate. Sometimes an estoppel certificate is entitled Tenant Rental Information Declaration or Rental Information Questionnaire.

An estoppel certificate is used to inform a potential buyer of commercial or residential rental property of the rights and privileges of existing tenants. The estoppel certificate requests information about rental amount, lease terms, protected tenancy status, oral agreements with the landlord, amendments to written lease agreements, promises made by the landlord, and agreements with respect to the payment of utilities, e.g. water and gas. In short, the estoppel agreement is meant to completely describe the nature of the relationship between the landlord and tenant. The goal is to put any prospective buyers of the rental property on notice regarding the rights and privileges that the existing tenants enjoy.

Am I required to complete an Estoppel Agreement?

A tenant must sign an estoppel certificate where the written lease contains a provision requiring the tenant to do so. It is a breach of lease to refuse to complete an estoppel where the lease requires a tenant to do so. Many leases contain this clause, so it is very important that a tenant reviews the lease before deciding whether or not to fill out an estoppel certificate.

If your lease contains a provision that requires you to complete an estoppel certificate, it will also state how many days you have to do so. Review this provision of your lease carefully as a tenant typically only has a few days to complete an estoppel certificate and return it to the landlord.

Where a tenant fails to complete an estoppel certificate as mandated by a lease, the tenant can be evicted for breach of the lease agreement. Absent a lease provision, a tenant is not required to complete and sign an estoppel agreement. However, in many circumstances it will be in the tenant’s best interest to fill out and sign an estoppel certificate even if the lease does not require the tenant to do so.

Should I sign an Estoppel Certificate?

Even though a lease may not require an estoppel certificate, there are a few situations where a tenant should still sign an estoppel agreement. First, a tenant should sign an estoppel agreement where the tenant has oral agreements with the landlord that are not memorialized in writing. For example, if a landlord orally agreed to allow a tenant to have a pet, the tenant would be wise to list that agreement in the estoppel certificate, so the new owner will be put on notice of this privilege. Other examples include agreements about payment of utilities, garage and storage areas, subletting, use of common areas, rent reductions, security deposit interest, and rent increases.

Second, in rent-controlled jurisdictions, a tenant may want to sign an estoppel certificate to inform potential purchasers of restrictions on the property in the event of a no-fault eviction, such as a restriction on condominium conversion.

Third, a tenant should sign an estoppel certificate if the tenant lives in a rent-controlled jurisdiction and has protection against certain types of evictions because of age, disability or terminal illness. It is wise to talk to a tenant rights attorney or an appropriate city agency to determine whether protected status applies or whether property restrictions may apply after certain no-fault evictions.

What are some things that may not be covered in my lease but that I will want to address in the Estoppel Certificate?

You may have made side agreements with your landlord that are not in your lease or that contradict what your lease says. To preserve any of these agreements, you will want to include them in your estoppel certificate. Some examples are

• Free use of a storage area
• Free use of a parking spot
• Permission to have a pet
• Exclusive use of a backyard
• An agreement to maintain part of the building in exchange for reduced rent
• Permission to sublet
• Permission to have a roommate(s)

The above list is far from exhaustive. The examples are to illustrate how varying outside agreements with a landlord can be. Tenants will want to make sure to address any agreements that are in their favor that they want to preserve.

What is the effect of an Estoppel Agreement?

The contents of an estoppel agreement are conclusively presumed to be true and bind both the landlord and tenant. Plaza Freeway Ltd. P’ship v. First Mountain Bank, 81 Cal. App. 4th 616, 628 (2000). In fact, the contents of the estoppel agreement are deemed conclusive even if they are erroneous. Id. What this means is that tenants are bound by the contents of an estoppel certificate. Id.; Cal. Evid. Code § 622. Landlords are also estopped from challenging the veracity of the estoppel certificate. Miner v. Tustin Ave. Inv’rs, LLC, 116 Cal. App. 4th 264, 271 (2004); Cal. Evid. Code § 622. Where an ambiguity exists between the estoppel certificate and the lease or other written document, courts will read the lease and estoppel together to rectify the ambiguity. Miner, 116 Cal. App. 4th at 268; Cal. Evid. Code § 622. Although these leading California cases pertained to commercial tenants, the court’s opinions are relevant to residential tenants as well.

In Plaza Freeway, the defendant had a twenty-five-year-lease that was ambiguous as to the lease’s commencement and termination dates. 81 Cal. App. 4th at 619. When the building was sold to the plaintiff, the defendant signed an estoppel certificate that set forth the lease’s commencement and termination dates. Id. at 620. Defendant had an option in their lease to extend their term that required defendant to notify plaintiff twelve months prior to the expiration of the lease to exercise that option. Id. at 620. When the defendant attempted to exercise the option to extend their term, the plaintiff claimed that defendant was past the notification deadline to do so based on the estoppel certificate dates that defendant had provided. Id. at 619. Defendant disagreed and stayed in possession of the property. Id. Thereafter, plaintiff filed an eviction lawsuit. Id. The trial court determined what the correct lease termination date was and found that regardless of the estoppel certificate, the defendant was in lawful possession of the property having timely exercised its option per the lease. Id. However, the trial court’s judgment was reversed on appeal. Id. The appellate court found that the defendant was bound by the dates they wrote in the estoppel certificate—even though the dates were incorrect. Id. at 629. The court made clear that the contents of an estoppel certificate are deemed conclusive, ruing that to hold otherwise “would defeat the purpose behind the widespread practice of using estoppel certificates.” Id. at 628.

But, where an ambiguity exists between the estoppel certificate and the lease or other written document, courts will read the lease and estoppel together. Miner, 116 Cal. App. 4th at 264. Where a conflict between a lease and an estoppel certificate is caused by ambiguity in the estoppel and not the lease, the ambiguity may not have a presumptive estoppel effect on the tenant’s rights regarding clearly stated lease terms. Id. This is distinguishable from Plaza Freeway where the estoppel was clear on its face.

In Miner, the plaintiff’s lease contained an option to renew. However, the plaintiff had completed an estoppel certificate that had a clause that stated the tenant had no options “except as follows”, and plaintiff left this space blank. Id. at 271. Considering the lease provided for an option, the tenant created an ambiguity by leaving this provision on the estoppel certificate blank. Id. at 267. The court concluded that the estoppel certificate and the lease together constituted the whole contract to be interpreted. Id.

The important thing to note with regards to completing the estoppel certificate is that tenants must absolutely make sure that the information on the document is correct, accurate, and complete in order to protect their rights. A tenant should carefully review their lease, addendum, and any other agreement they have with the landlord prior to completing an estoppel certificate.

What are the risks in signing an Estoppel Certificate?

Typically, an accurately filled out estoppel certificate will present no risks to the tenant. However, if the estoppel certificate is not accurate and describes rights that are inconsistent with the terms of the lease, a problem may result. Although rare, tenants have been sued for inaccurate estoppels, primarily in rent-controlled jurisdictions. Because an estoppel certificate is a binding document, it should not include provisions that are inconsistent with the lease or that are inaccurate. Plaza Freeway, 81 Cal. App. 4th at 616; Cal. Evid. Code § 622. In order to avoid these potential issues, a tenant should be very careful to ensure that every provision listed in the estoppel agreement is accurate and complete.

An estoppel certificate should not be used in place of the lease itself. A tenant should object to any provision that would modify their lease terms or limit their rights under the lease. A tenant should also be careful filling out information on the estoppel certificate that is already contained in the lease as doing so can result in an ambiguity if completed incorrectly or inaccurately. Make sure that the original lease and also all pertinent documents are listed on the estoppel certificate, such as any amendments, addendum, or side agreements. If you leave out any important details of your tenancy that are favorable to you, the new landlord may be able to deny you those benefits later.

What if a real estate agent does not forward the Estoppel Certificate to potential buyers?

Realtors have a duty to provide prospective purchasers with all estoppel certificates. Cal. Civ. Code § 2079.16. In addition, a buyer can recover damages against a seller or real estate agent who submits an erroneous estoppel agreement. Linden Partners v. Wilshire Linden Ass’ns., 62 Cal. App. 4th 508, 531 (1998).

While this situation creates a problem for the buyer, seller, and agent, as long as the tenant met their obligation in completing the estoppel certificate correctly and accurately, the tenant will bear no liability. If any question arises, however, it is best to consult with an experienced tenant attorney.

What does the San Francisco Rent Ordinance say about Estoppel Certificates?

The San Francisco Rent Ordinance contemplates the serious effect that signing an estoppel certificate may have on tenants, and as a result, per Section 37.9(k), landlords must serve a “Disclosure of Rights to Tenants Before and After Sale of Rental Units Subject to Section 37.9.” S.F. Cal., Rent Ordinance § 37.9(k)(1).

Section 37.9(k)(1) states that when property containing rental units that are subject to the SF Rent Ordinance is being sold, landlords shall provide tenants with a written disclosure of certain rights. With regards to estoppel certificates, the Ordinance states that the disclosure must contain the following:

A statement that tenants are not required to complete or sign any estoppel certificates or estoppel agreements, except as required by law or by that tenant’s rental agreement. The statement shall further inform tenants that tenant rights may be affected by an estoppel certificate or agreement and that the tenants should seek legal advice before completing or signing an estoppel certificate or agreement.

Under Section 37.9(k) the landlord must also disclose to a tenant that they cannot be evicted, that their rent cannot be raised, and that their lease cannot be changed solely because the property is being sold. S.F. Cal., Rent Ordinance § 37.9(k)(1).

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The role of an estoppel certificate in a lease relationship

An estoppel certificate is a signed statement usually by a party to a commercial lease certifying as true particular facts related to the lease or other main contract. Also called an offset statement in some contexts, the estoppel certificate is usually required of a commercial tenant or lessee when the leased property is being sold or the lease assigned to another party.

The transfer of interest to the third party is made in reliance on the existence of the circumstances set out in the estoppel certificate. For example, the leasing party usually memorializes in the certificate current major facts such as the dates the lease began and will end, whether rent is in arrears or up to date, the amount of rent or how it is calculated, any options to renew or extend the lease and when they must be exercised, any subleases and their terms, and so on.

Subsequent purchasers or assignees of the landlord or owner must be able to rely on these facts as the basis for setting a purchase price or negotiating other key terms, and in calculating the economic benefit of the arrangement going forward. The estoppel certificate in important ways becomes the basis for the new relationship vis-à-vis the current status of the pre-existing lease or mortgage.

For these reasons, it is important that any lessee or tenant asked to complete an estoppel certificate be extremely careful as to the accuracy of included facts because a landlord, assignee or subsequent purchaser of a related interest could rely on the representations as true to its detriment and seek legal recourse against the signer if a certified fact turns out to be false or inaccurate.

Before certifying anything to a third party, the drafting or signing party should seek out legal counsel with experience in commercial leases for assistance with determining what facts are in existence and with drafting the correct language for the estoppel certificate. Likewise, any party who acts to its detriment in reliance on an estoppel certificate should seek the advice of a real estate lawyer to understand whether legal action is possible to enforce the terms of the certificate.

In California, courts have held that estoppel certificates are written instruments the contents of which are presumed to be true for evidentiary purposes. Based on this rule, the California Court of Appeal in the important case of Plaza Freeway Limited Partnership v. First Mountain Bank found that the lease termination date set forth in the commercial renter’s estoppel certificate was conclusive and that the renter’s exercise to renew the lease was late because it did not comply with the requirement that it be exercised 12 months before that date.

Representing the landlord in that case was the Southern California business law firm of Klein & Wilson that assists clients with leases, estoppels certificates and a wide variety of other commercial matters.

Mark Wilson , a trial attorney, has won nearly every case he has tried or arbitrated. He lost only one jury trial and obtained a complete reversal on appeal. Mr. Wilson represents clients in business litigation and legal malpractice cases and was named in the 2017 – 2020 SuperLawyers Top 50 Orange County lists. Mr. Wilson is a California State Bar certified specialist in Legal Malpractice Law and can be reached at 949-239-0907 ; [email protected] ; https://www.kleinandwilson.com

Assignment of Lease: How It Works and Parties Involved

Jump to section, what is an assignment of lease.

The assignment of lease is a title document that transfers all rights possessed by a lessee or tenant to a property to another party. The assignee takes the assignor’s place in the landlord-tenant relationship.

You can view an example of a lease assignment here .

How Lease Assignment Works

In cases where a tenant wants to or needs to get out of their lease before it expires, lease assignment provides a legal option to assign or transfer rights of the lease to someone else. For instance, if in a commercial lease a business leases a place for 12 months but the business moves or shuts down after 10 months, the person can transfer the lease to someone else through an assignment of the lease. In this case, they will not have to pay rent for the last two months as the new assigned tenant will be responsible for that.

However, before the original tenant can be released of any responsibilities associated with the lease, other requirements need to be satisfied. The landlord needs to consent to the lease transfer through a “License to Assign” document. It is crucial to complete this document before moving on to the assignment of lease as the landlord may refuse to approve the assignment.

Difference Between Assignment of Lease and Subletting

A transfer of the remaining interest in a lease, also known as assignment, is possible when implied rights to assign exist. Some leases do not allow assignment or sharing of possessions or property under a lease. An assignment ensures the complete transfer of the rights to the property from one tenant to another.

The assignor is no longer responsible for rent or utilities and other costs that they might have had under the lease. Here, the assignee becomes the tenant and takes over all responsibilities such as rent. However, unless the assignee is released of all liabilities by the landlord, they remain responsible if the new tenant defaults.

A sublease is a new lease agreement between the tenant (or the sublessor) and a third-party (or the sublessee) for a portion of the lease. The original lease agreement between the landlord and the sublessor (or original tenant) still remains in place. The original tenant still remains responsible for all duties set under the lease.

Here are some key differences between subletting and assigning a lease:

• Under a sublease, the original lease agreement still remains in place.
• The original tenant retains all responsibilities under a sublease agreement.
• A sublease can be for less than all of the property, such as for a room, general area, portion of the leased premises, etc.
• Subleasing can be for a portion of the lease term. For instance, a tenant can sublease the property for a month and then retain it after the third-party completes their month-long sublet.
• Since the sublease agreement is between the tenant and the third-party, rent is often negotiable, based on the term of the sublease and other circumstances.
• The third-party in a sublease agreement does not have a direct relationship with the landlord.
• The subtenant will need to seek consent of both the tenant and the landlord to make any repairs or changes to the property during their sublease.

Here is more on an assignment of lease here .

Parties Involved in Lease Assignment

There are three parties involved in a lease assignment – the landlord or owner of the property, the assignor and the assignee. The original lease agreement is between the landlord and the tenant, or the assignor. The lease agreement outlines the duties and responsibilities of both parties when it comes to renting the property. Now, when the tenant decides to assign the lease to a third-party, the third-party is known as the assignee. The assignee takes on the responsibilities laid under the original lease agreement between the assignor and the landlord. The landlord must consent to the assignment of the lease prior to the assignment.

For example, Jake is renting a commercial property for his business from Paul for two years beginning January 2013 up until January 2015. In January 2014, Jake suffers a financial crisis and has to close down his business to move to a different city. Jake doesn’t want to continue paying rent on the property as he will not be using it for a year left of the lease. Jake’s friend, John would soon be turning his digital business into a brick-and-mortar store. John has been looking for a space to kick start his venture. Jake can assign his space for the rest of the lease term to John through an assignment of lease. Jake will need to seek the approval of his landlord and then begin the assignment process. Here, Jake will be the assignor who transfers all his lease related duties and responsibilities to John, who will be the assignee.

You can read more on lease agreements here .

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Assignment of Lease From Seller to Buyer

In case of a residential property, a landlord can assign his leases to the new buyer of the building. The landlord will assign the right to collect rent to the buyer. This will allow the buyer to collect any and all rent from existing tenants in that property. This assignment can also include the assignment of security deposits, if the parties agree to it. This type of assignment provides protection to the buyer so they can collect rent on the property.

The assignment of a lease from the seller to a buyer also requires that all tenants are made aware of the sale of the property. The buyer-seller should give proper notice to the tenants along with a notice of assignment of lease signed by both the buyer and the seller. Tenants should also be informed about the contact information of the new landlord and the payment methods to be used to pay rent to the new landlord.

You can read more on buyer-seller lease assignments here .

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In 1991, Barbara Markessinis graduated cum laude from Albany Law School in Albany, New York. Shortly thereafter, Barbara was admitted to practice in New York State and in the United States District Court for the Northern District of New York. In 1997, Barbara was admitted to practice in Massachusetts and in April of 2009 she was admitted to the United States District Court for the District of Massachusetts. After graduating from law school, Barbara worked in private practice in the Albany, New York area and for Sneeringer, Monahan, Provost & Redgrave Title Agency, Inc. before joining the New York State Division for Youth and the New York State Attorney General's Real Property Bureau as a Senior Attorney. During her tenure with the Division for Youth, Attorney Markessinis found herself in Manhattan Family Court in front of Judge Judy! A career highlight for sure! After admission to the Massachusetts Bar, Barbara returned to private practice in the Berkshires and eventually started her own firm in June of 2006. Attorney Markessinis offers legal services in elder law, estate planning and administration/probate, family law, limited assistance representation (LAR), real estate and landlord tenant disputes. In 2016, after a family member found themselves in need of long term care, Attorney Markessinis’ launched her elder law practice. Through this experience, Attorney Markessinis discovered that the process of selecting a long term care facility and/or caregiver, applying for MassHealth and preserving an applicant’s assets are serious issues faced by many people every day. This area of the law is Barbara’s passion and she offers her legal services to families who find themselves in need of an elder law attorney. Attorney Markessinis is part of the Volunteer Legal Clinic in the Berkshire Probate & Family Court and has provided limited free legal services to patients and families at Moments House cancer support center in Pittsfield. She currently serves as a Hearing Committee Member for the MA Board of Bar Overseers and is a member of the Berkshire County and Massachusetts Bar Associations, Berkshire County Estate Planning Council (BCEPC). Attorney Markessinis is also the host of WUPE Talks Law. She also serves on the Town of Hancock Zoning Board of Appeals and Planning Board.

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Assignment of Lease

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I’m planning on leasing land from a church. Putting a gym on the property. And leasing it back to the school.

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A Quick Lesson in Two Vital Legal Documents

Robert Machson | May 01, 2003

There's an old saying that no job is tougher than the one you take for granted. That could certainly be said about SNDAs and estoppels, two mainstay documents of lease administration that are all-too-frequently overlooked.

A subordination, non-disturbance and attornment - SNDA - agreement is actually three agreements in one. The “subordination” portion permits a lender-mortgagee of the property whose lien is junior or subordinated to the tenant's (usually because the lease was recorded before recording the lien of the mortgage), to become superior to the lien of the lease.

Once the lender's lien is superior (in the event of a foreclosure) the lender may eliminate all junior liens. Most lenders insist that their loans be a “first lien” and most landlords appreciate that their property will be more valuable and more attractive to lenders if all of their leases are subordinate to subsequent mortgages. So, landlords frequently include a provision that makes all leases subordinate.

However, lenders also need another agreement along with subordination, to ensure that tenants can't walk away from their leases in the event of a foreclosure. This agreement is called an “attornment,” which is especially necessary in the states that extinguish a lease once the property has been foreclosed (although this is not the rule in the majority of states). The attornment agreement creates a contractual bond between tenant third-party mortgagee, pursuant to which the tenant agrees it will recognize the mortgagee as landlord.

It is important to note that in the majority of states where a foreclosure does not automatically extinguish the lease, the lender can still extinguish the lease at its option. If for example, the lease is at a below-market rent in a rising market. These states are referred to as “pick-and-choose” jurisdictions. Thus, whether in a state that automatically extinguishes the lease or in a pick-and-choose state, the tenant needs an agreement so that it is not left at the whim of the lender and the real estate market.

The agreement that protects the tenant is called a “non-disturbance.” A non-disturbance agreement permits the lease to stay in force so long as the tenant is not in default. Tenants looking toward a long-term lease with expensive improvements are advised to add a non-disturbance clause to any subordination agreement. This may need to be negotiated into a landlord's form agreement, as many of these leases do not contain non-disturbance provisions.

What should a tenant look for in an SNDA? First, it is important to remember that only the strongest tenants have much room to negotiate important provisions. Therefore, a tenant should try to negotiate only the most important issues first. For most tenants, this is unquestionably the non-disturbance agreement.

At a minimum, the tenant should insure that any lender/mortgagee agree to assume all of the obligations of the landlord. The easiest way to insert this into a lease is as a preface to subordination, i.e. “so long as the lienholder agrees to assume all of the duties and obligations of the landlord…”

A strong tenant should be more specific, especially if signing a lease for a space that is under construction or requires substantial repairs or renovation. In that case, it should include a provision requiring the mortgagee to complete any unfinished construction begun by the landlord as a pre-condition to collecting rent. (Many subordination agreements excuse lenders from this obligation, and tenants should watch for this language in their lease forms.) This provision might also include a similar covenant for casualty and condemnation repairs.

A tenant should also be assured there are no existing through a title search. The tenant could also ask the landlord to make a representation concerning preexisting liens. A tenant should insist that any preexisting lienors agree to the non-disturbance.

These rules apply where there is a ground lease or in cases of a sublet. A tenant should insist on a non-disturbance agreement from the ground lessor as well as from the master landlord and any of its lienors.

Beyond the non-disturbance agreement, tenants that risk losing substantial investments, especially those in free-standing locations and small centers, should insist that the SNDA be a separate document from the lease (in case there is any claim that the SNDA was extinguished as part of the lease in a foreclosure). Tenants should also insist upon the right to record the SNDA or a memorandum.

A more common document for a lease administrator is the estoppel. Usually, the estoppel is sent by the landlord whenever it is selling or refinancing property. Sometimes, the estoppel will be sent by the tenant when assigning, subletting or selling its business. In either case, the effect of the estoppel is to bind the executing party to certain statements of fact. These facts might include the existence of a binding lease and the documents that constitute the lease, the status of rent payments and security deposits and any lease defaults.

Breach of contract

From the tenant's point of view, there are only a few issues to keep in mind. First, when negotiating the lease, do not permit the landlord to execute the estoppel for the tenant if it is not returned within the time period allotted — which should be at least 15, and preferably 30 days. Rather, the obligation to return the estoppel is a condition of the lease; a tenant's failure to comply is a breach. Second, don't permit the estoppel to be used “offensively.”

The purpose of the estoppel is to benefit third parties not privy to the landlord-tenant relationship. Courts have held that a landlord can't use the estoppel against the tenant, for example, to claim that the tenant “agreed” that there haven't been overcharges of operating costs. Still some care should be taken to preserve the tenant's rights and remedies.

If a tenant is undertaking an audit of rent or other charges, the estoppel should be amended to the effect that “this statement is subject to any claims for overcharges that may be discovered in audit by Tenant.” Even if no audit is under way, or even planned, a tenant may still protect itself by inserting a phrase, such as, “this statement does not cover facts or conditions not within the Tenant's actual knowledge at the time of execution.” If the tenant already has knowledge of overcharges or other breaches of the lease, it is certainly prudent to include them in the estoppel.

The bottom line is: SNDAs and estoppels serve the landlord and its lenders. While it is reasonable for your landlord to insist on them, a tenant must protect itself accordingly.

Who Robert Machson Principal of Robert A. Machson & Associates LLC, a New York law firm that represents national chain retailers and tenants

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Relating to Real Estate

An Estoppel Certificate Might Not Amend a Lease

Does an estoppel certificate signed by a tenant with terms that vary from the underlying lease amend the lease? Not necessarily, according to the Fourth Circuit’s decision in Expo Properties, LLC v. Experient, Inc. , 956 F.3d 217 (4th Cir. 2020).

Experient Inc. (Tenant) leased property from Expo Properties, LLC (Landlord) under a lease signed in 1994, which had been amended five times (altogether, the Lease). When Tenant prepared to vacate the property in 2012, Landlord asked Tenant to perform significant move-out work, including repairs to the roof; heating, ventilation, and air conditioning system; and carpeting. Tenant refused, claiming that the Lease did not require Tenant to perform the work.

The Lease allocated responsibility for maintenance and repair between Tenant and Landlord based on which party caused damage and benefitted from the work, as we see in most commercial leases. During the course of the relationship between Tenant and Landlord and their predecessors-in-interest, however, Landlord had sent a letter to Tenant in 1998 (the Letter) stating that “all costs for repairs, maintenance, and capital improvements will be borne” by Tenant. Tenant did not counter-sign the Letter or respond to the Letter.

Additionally, Tenant executed an estoppel certificate in 2006 (the Estoppel Certificate) that stated, “Tenant acknowledges that all repairs … are the responsibility of Tenant.” The Estoppel Certificate also stated that certain provisions of the Lease had been “clarified” by the Letter. The Letter and the Estoppel Certificate were included in the list of lease documents in amendments to the Lease.

Landlord claimed that the Letter and the Estoppel Certificate amended the Lease and required Tenant to perform the desired work. Tenant, in turn, relied on the allocation of the responsibilities in the Lease without modification by the Letter or the Estoppel Certificate.

The Fourth Circuit held that the Letter and the Estoppel Certificate were insufficient to amend the Lease, reasoning that neither document “evinces mutual assent” as required under Maryland law, specifically an intent to be bound and a definiteness of terms. The Letter was only signed by Landlord, and the Estoppel Certificate was only signed by Tenant; the Lease specifically required that any amendments must be signed by both parties. Further, the Fourth Circuit found that the Estoppel Certificate was not sufficiently clear to demonstrate a meeting of the minds on revised terms for the Lease. The Lease, in contrast, includes clear and unambiguous terms on the allocation of maintenance and repair responsibilities between the parties. As such, the Fourth Circuit rejected Landlord’s claims that Tenant was responsible for the requested repair work.

Practice Note : The court focused on the cleanest path to a resolution in this case — read the Lease and stick with its terms. In contrast, real estate practitioners know that lease files are often messy and that letters and estoppel certificates need to be read closely and revised or rejected when incorrect. The court also conveniently avoided discussion of the fact that the Estoppel Certificate was signed by Tenant (since the Estoppel Certificate included terms that were against Tenant’s interest) and did not address the argument that estoppel certificates are generally deemed to be accepted by the parties who rely on their terms. In part, it appears that the court thought that Landlord was overreaching in its request for additional funds from Tenant and that Landlord had crafted a reading of the Letter and the Estoppel Certificate to fit its purpose.

Many of the issues in this case could have been addressed by amending the Lease if the business deal between the parties changed. Such an amendment could have been included as part of the Estoppel Certificate, but it should have been clearly identified as a lease amendment.

For questions, contact Edward J. Levin .

Ed Levin 410-576-1900 • [email protected]

November 13, 2020

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Levin, Edward J.

Real Estate

The Role of Estoppel Certificates in CRE [TEMPLATE]

The estoppel certificate stands as a cornerstone document, pivotal in securing transparency and trust among landlords, tenants, and buyers alike. Often likened to a snapshot, it captures the current state of lease agreements, serving as a definitive record that parties can rely on during transactions.

What is an Estoppel Certificate?

An estoppel certificate is a document used in commercial real estate transactions that confirms the terms under which a tenant occupies a property, thereby safeguarding the interests of all parties involved—landlords, tenants, and potential buyers.

Legally binding, this certificate is a declaration by the tenant that the lease details as presented by the landlord are correct and that there are no hidden conditions or disputes. It’s important in cases of property sales or refinancing, where clear and undisputed knowledge of existing leases significantly affects the outcome. By signing this certificate, tenants affirm their lease’s status, which in turn, supports the landlord in maintaining the property’s valuation and stability in the marketplace.

Purpose of an Estoppel Certificate

Estoppel certificates primarily serve to confirm the accuracy of the information regarding lease agreements in commercial real estate transactions. For landlords, these documents are essential for verifying tenant commitments and ensuring there are no discrepancies in lease terms that could affect property transactions. Landlords require these certificates when selling the property or securing financing, as they provide potential buyers or lenders with a transparent snapshot of the lease terms agreed upon by current tenants (transparent is the key word here).

This transparency helps all parties make informed decisions and facilitates smoother transactions by preempting potential disputes over lease conditions. Additionally, in a fluid market, estoppel certificates uphold the integrity of lease agreements during ownership transfers, ensuring that all conditions are respected and carried forward.

Estoppel Certificate Template

An estoppel certificate template is a vital tool for landlords in commercial real estate, ensuring that all pertinent lease information is accurately represented and agreed upon by the tenants. The template should be structured to include the following key elements:

• Tenant Information: Name of the tenant and details about the leased premises.
• Lease Commencement and Expiration Dates: Exact dates marking the beginning and end of the lease term.
• Rent Details: Amount of rent currently paid and any specifics regarding payment terms or future rent adjustments.
• Security Deposit: The amount held as a security deposit by the landlord.
• Tenant confirms that the lease is in full effect and there are no breaches or defaults from either party.
• Any amendments or modifications to the original lease agreement are accurately documented.
• Tenant declares no existing disputes regarding the lease terms.
• Tenant Rights and Options: Details of any renewal options, purchase rights, or other special provisions granted to the tenant under the lease.

This document should be presented in a clear, easy-to-understand format, enabling both experienced and less experienced landlords to utilize it effectively in their dealings.

Key Components of an Estoppel Certificate

An estoppel certificate includes several crucial elements that provide a comprehensive overview of the lease agreement’s status and the tenant’s commitments. Tenant Information is a fundamental part of this document, listing the tenant’s name and detailed information about the leased premises, ensuring clarity about who is responsible for the lease. Lease Commencement and Expiration Dates are specified to confirm the active period of the lease, critical for understanding the timeline of tenant obligations. The Rent Details section records the current rent amount, including any special payment terms or scheduled future adjustments, which is vital for financial planning and assessment.

The Security Deposit section notes the amount held and its holder, which acts as a financial assurance for the landlord against potential damages or breaches of the lease. Under Confirmations and Declarations , the tenant verifies that the lease is in effect without modifications other than those explicitly noted, that no defaults are outstanding, and that there are no disputes over the lease. This part of the certificate is especially significant as it reassures all parties of the lease’s validity and the tenant’s adherence to its terms.

Tenant Rights and Options detailed in the certificate, such as renewal and purchase options, outline specific privileges the tenant may exercise, influencing future property management and transaction decisions. This comprehensive detailing ensures that all parties are fully aware of the terms and associated conditions, reinforcing transparency and trust in property transactions.

The Importance of Estoppel Certificates in Various Property Types

Estoppel certificates are particularly valuable across various types of commercial properties, from office buildings and retail spaces to industrial complexes and multi-family residential units. Each property type benefits differently from the clarity these certificates provide. In office buildings , where leases are typically complex and involve significant tenant improvements and concessions, estoppel certificates confirm the specifics of these arrangements and any subsequent amendments.

For retail spaces , they ensure that details such as exclusivity clauses, co-tenancy agreements, and percentage rents are clearly understood and agreed upon, which is crucial for maintaining the expected value of the property.

In industrial properties , estoppel certificates might focus more on clarifying the use of the property, any environmental responsibilities, and the condition of the property in terms of maintenance and modifications made by the tenant.

Process and Timeframes for Estoppel Certificates

The preparation and execution of estoppel certificates involve a clearly defined process that must be timely to avoid complications in real estate transactions. Typically, the landlord initiates the estoppel process by drafting the certificate based on the current lease documents and sends it to the tenant for verification and signature. It is crucial that tenants respond promptly, usually within a specified timeframe which can range from 10 to 30 days depending on the lease conditions or local laws.

During this period, tenants are expected to review the document thoroughly to confirm that all stated terms match their understanding and records of the lease. Any discrepancies found must be addressed and corrected before signing the certificate. This quick turnaround is vital, especially in situations involving property sales or refinancing, where the accuracy of lease information can significantly influence the deal.

Legal Protections and Risks

Estoppel certificates provide legal protections by establishing a clear and undisputed record of the lease terms as acknowledged by the tenant. This documentation is crucial for landlords as it minimizes the risk of tenant disputes over the terms of the lease during the sale or refinancing of the property. For tenants, signing an estoppel certificate that accurately reflects the lease terms protects their rights under the lease, ensuring that these are recognized and upheld by potential new owners or financiers.

However, there are inherent risks involved, particularly if the estoppel certificate contains errors or omissions. For landlords, an inaccurate certificate can mislead potential buyers or lenders, potentially leading to financial losses or legal challenges. Tenants face risks too; inaccurately confirming unfavorable conditions or waiving certain rights unknowingly can affect their operations and lease security. Therefore, careful review and legal consultation are advised for both parties before finalizing the document.

Common Issues with Estoppel Certificates

Handling estoppel certificates can sometimes present challenges, such as tenants refusing to sign the document or delays in its submission by real estate agents. Refusal to sign can arise from disagreements over the terms listed or misunderstandings about the lease obligations. To prevent such issues, clear communication and negotiation are essential to resolve any discrepancies and reach an agreement that reflects the true conditions of the lease.

Delays in submitting estoppel certificates, particularly through intermediaries such as real estate agents, can jeopardize property transactions, leading to missed deadlines and potential deal breakdowns. Landlords should monitor the process closely and ensure that all parties understand the importance of adhering to the agreed timelines.

Stephen Hachey

Mr. Hachey opened his real estate law practice in Tampa, Florida in 2007. He is admitted to the Florida Bar and is also a graduate of Florida State University, earning his law degree in 2005. He is also a current member of the National and Florida Board of Realtors, the Florida Bar (Bar number 15322), and a Circuit Civil Mediator in the state of Florida.

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The Purpose of Estoppel Certificates and When to Use Them

Requests for estoppel certificates can arise in many contexts during the course of a commercial real estate transaction. The most common scenario occurs when a landlord is selling or mortgaging its property and the prospective purchaser or lender desires confirmation from the tenant of the status of the existing lease.

As part of its due diligence process, a lender or a prospective purchaser who intends to take an assignment of the lease will ask the tenant to certify certain items, such as:

• The rental amount;
• The amount of the security deposit; and
• Whether the landlord is currently in default.

Typically, the lease will provide a time frame for the tenant to respond to such a request so the prospective purchaser or lender can evaluate the transaction. If the estoppel certificate discloses any red flags, the prospective purchaser can address them. For example, this can be done by asking for a credit from the seller/landlord at closing for any items the seller/landlord owes to the tenant or is responsible for curing, or the purchaser can terminate the transaction.

Estoppel certificates can also be given by a landlord in the event a tenant wants to sublease its premises so the proposed sublessee understands the status of the underlying lease before signing a sublease.

A landlord may also provide an estoppel certificate during a corporate transaction. If the seller is a business that leases the property where it operates, the prospective purchaser of the business will want confirmation that the seller/tenant has been complying with the terms of the lease before it steps into the shoes of the seller/tenant.

A prospective purchaser of property may request an estoppel certificate if the property is encumbered by an operating document, such as a reciprocal easement agreement or declaration governing maintenance at the property. A prospective purchaser should ask the party responsible for collecting the payments due under the operating document, such as an association, to certify the current property owner has been making all the required payments so the prospective purchaser is not saddled with past-due payments when it closes on the property.

Although less common, estoppel certificates can also be used when a purchaser assigns its interest in a real estate purchase agreement to a third party. The proposed assignee may want confirmation that the purchase agreement is in effect and the existing purchaser is not in default under the terms of the purchase agreement.

Estoppel certificates can be useful in a variety of situations and are vital during the due diligence process to limit a party’s risk in a commercial real estate transaction.

Interested in learning more about the effectiveness of estoppel certificates and how they can help ensure a smooth commercial real estate transaction? Contact Kylie Bergmann today .

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What is a Tenant Estoppel and How Does It Work?

Robert Schmidt

July 7, 2016

In commercial real estate the tenant estoppel often comes up during the due diligence phase of an acquisition or during the underwriting of a loan . What exactly is a tenant estoppel and how does it work? Let’s dive in and take a closer look at the tenant estoppel.

What is a Tenant Estoppel?

What exactly is a tenant estoppel? By definition, an estoppel certificate is a “signed statement by a party certifying for another’s benefit that certain facts are correct, as that a lease exists, that there are no defaults, and that rent is paid to a certain date. A party’s delivery of this statement estops that party from later claiming a different state of facts.’’ Black’s Law Dictionary, 572 (7th Ed., 1999).

In other words a  tenant estoppel is a certified statement by a tenant that verifies the terms and conditions and current status of their lease. Most commercial real estate leases require a tenant to provide an estoppel letter or certificate upon request and this is often a critical step during the due diligence phase of an acquisition and the also during the underwriting of a commercial real estate loan.

Why is this so important? The tenant estoppel provides proof of cash flow, which is ultimately what a potential investor or lender in a property is concerned with.

As an aside, the word “estop” simply means to prohibit, and a tenant estoppel is therefore a certificate that prohibits the tenant from taking a position contrary to what is stated in their certificate.

What’s in a Tenant Estoppel Letter or Certificate?

While the actual items required in a tenant estoppel will vary, here are some common points covered in a typical tenant estoppel letter or certificate:

• The commencement date of the lease.
• The date to which rent has been paid.
• That there are no defaults by either the landlord or the tenant.
• If there are defaults by either party, then a specification of these defaults will be required.
• Verification that the lease is unmodified and in full force and effect.
• If the lease has been modified, then the estoppel certificate will include a statement verifying what modifications have been made.

Most leases will have a provision requiring a tenant to provide a tenant estoppel letter or certificate upon request, however, the details of what is to be included in the actual tenant estoppel certificate can vary. The above items are usually a good starting point.

The tenant estoppel is a common item that often comes up during the due diligence phase of an acquisition and during the loan underwriting process. It’s used to provide a third-party insight into the relationship between a landlord and a tenant. In this short article we covered the purpose of the tenant estoppel and the basic items included.

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Commercial Tenant’s Lease – Estoppel and Attornment Considerations

A standard provision of commercial lease agreements is an agreement by the Tenant to execute estoppel certificates, and to attorn to a lender.

An estoppel certificate is a statement from the tenant to either a lender or a prospective purchaser that clarifies:

• what property is leased (often includes square footage)
• the length term of the lease
• that the lease has or has not been modified
• whether there are any renewal options
• whether there is any first right to purchase, expand the demised premises
• the dollar amount of the rent
• the dollar amount of the security deposit
• whether there has been any subletting or assignment of the lease
• the percentage of real estate taxes or Common Area Maintenance (“CAM”) charges paid
• Whether there are any outstanding claims by the Tenant against the Landlord or set offs

When a tenant is asked to sign an estoppel certificate, careful attention must be paid to make sure that the recitals are accurate.  Remember, if you fail to assert any claims you might have against the landlord, you will not be able to assert those claims against the addressee of the estoppel certificate.

Unless the lease is recorded, if a lender forecloses on commercial property, the lender usually has the option to terminate the lease and seek possession.  Whether the lender decides to do this or not depends on the circumstances.  If, for example, the foreclosing lender (or the purchaser at a foreclosure auction) decides that it would be better to empty the building to enhance resale or new construction possibilities, the tenants might be instructed to vacate.

Astute tenants, especially tenants occupying all or much of the building, at the time of initial lease negotiations, would want to include a requirement that the current lender execute a “non-disturbance agreement” saying that, if the lender does foreclose, it will not disturb the tenant’s lease, as long as the tenant is in good standing.  A tenant would also prefer to record the lease (or a shorter form of the lease called a “Memorandum of Lease”) at the D.C. Recorder of Deed or at the Virginia or Maryland courthouses, so that, if the property is refinanced, the new lender’s mortgage is subordinate to your recorded lease.  This would eliminate the successor lender’s ability to terminate the lease.

While a landlord may or may not be willing to secure a non-disturbance agreement from the lender for the benefit of the tenant, landlords usually do not permit recordation of a lease so that future purchases or refinances do not have complications.

A  lender’s agreement not to disturb may be conditioned upon certain waivers by the tenant.  Leases often require the tenants quickly execute all-encompassing “Subordination, Non-Disturbance, and Attornment Agreements (“SNDA”). The terms of the SNDA may not even be set forth in the lease and the document may compromise tenants significantly.   As the name of the document implies, the tenant is agreeing that the mortgage being taken out by the landlord is senior to the lease (and could result in the lease being terminated in the event of a foreclosure, that the lender agrees not to use its right to terminate the lease under certain scenarios, and that the tenant agrees to accept the lender as the new landlord, in the event of a foreclosure.

At the time of lease negotiations, the tenant might try to seek carve-outs from the SNDA provisions in the lease, such as:

• The foreclosing lender is still responsible for the tenant’s security deposit
• The lender’s rights to anything other than collection of rent only spring into effect when there is an actual foreclosure
• The lease continues in full force and effect as long as the tenant was current in its rent when the foreclosure occurred
• Set-offs or claims that the tenant may have against the landlord may be preserved against the lender as long as they are reported to the lender, in writing, within 10 days after the tenant receives notification of a foreclosure or other default from  the lender
• Landlord defaults must be cured with the same amount of time as tenant defaults

It is likely that landlords will balk at some of the foregoing requests for inclusion in the lease. It depends entirely upon the relative leverage of the landlord and tenant.

SNDA’s also usually provide that no lease amendment is binding upon the lender unless the lender has signed off on the amendment.  Tenants should insist on that sign-off if there are any changes, extensions or other agreements benefiting the tenants.  Similarly, tenants should put the lenders on notice of any defaults by the landlord.

TAGGED: Attornment Agreements , commercial foreclosures , commercial lease agreements , commercial leasing , Commercial Tenant’s Lease , estoppel certificate , Non-Disturbance , Subordination

Critical Elements of Tenant Estoppel Letters

If you are an investor buying a leased property, you are undoubtedly looking to the rental income as the return on your investment, in addition to the appreciation in the value of the property that is likely to occur over time. Your primary focus is probably the amount of rent being paid, but there are other aspects of a lease that are important to consider.  

A prudent buyer will not only review all leases in detail but will also want tenants to provide estoppel letters addressing whether potential issues exist under their leases that would adversely affect the buyer after closing. Because of this, a buyer often includes in the purchase contract a requirement for the seller to obtain acceptable estoppel letters as a condition to the buyer’s obligation to close. If multiple leases exist, the buyer may be willing to get estoppel letters from only a percentage of tenants, or only from specific ones whose leases are considered critical, or a combination of both. These points will be negotiated in the purchase contract, along with what it means for a tenant’s estoppel letter to be considered “acceptable” to the buyer.  

Of course, there is no guarantee that tenants will give estoppel letters, even if required by their leases, so a seller will generally only agree to use commercially reasonable efforts to obtain them. If a lease includes as an exhibit a form of estoppel letter that the tenant has agreed to give upon request, that is what the buyer can expect. If the lease does not include such a form, the buyer should provide a form for the seller to send to the tenants.  

What types of assurances should be in a tenant estoppel letter?   

The estoppel letter should specifically reference the lease and all amendments by title, parties and dates, ideally have copies attached, and state that they are true and correct, in full force and effect, have not otherwise been modified or amended, and there are no other agreements, written or oral, relating to the tenant’s leasing of the property. This gives the buyer the comfort that the tenant cannot come back later and claim that there was a modification of the lease unknown to the buyer.  

The tenant should confirm the commencement and termination dates of the lease (taking into account all options to renew), and that no notice of termination has been given by the landlord or tenant with respect to the lease.  

There should be an affirmation that there exist no uncured defaults under the lease, or events which, with the passage of time, and the giving of notice, or both, would be a default.  

The estoppel letter should disclose the amount of any security deposit or last month’s rent (or both) deposited with the landlord. It should also indicate that all payments due to the landlord under the lease through and including the date of the letter have been made, including the current installment of minimum rent and the period to which it applies, as well as the amount.   

If the rent is calculated based on the square footage that the tenant is leasing, the tenant should certify that it has been measured and what it is.  

If the landlord is holding other funds besides rent that the tenant paid pursuant to the lease as escrow reserves for future expenses, the estoppel letter should specify them. These typically include funds for real estate taxes, personal property taxes, insurance and common area maintenance, but may include other purposes depending on the lease.  

The estoppel letter should confirm that there are no disputes between the landlord and the tenant with respect to any rental due under the lease or with respect to any provision of the lease.  

The tenant should consent to the assignment of the lease by the seller to the buyer, and agree that no terms and conditions of the lease are altered, amended or changed as a result of such assignment.  

The tenant should agree to give the buyer copies of any notices which the tenant is required to deliver to the landlord under the lease with respect to defaults or failure to perform by the landlord pending closing. After that, the buyer will be the landlord and get those notices anyway; however, the buyer will want to know of any issues that arise before closing (and presumably address the ramifications of that in the purchase contract).    

If the lease required the landlord to perform any construction work, the tenant should represent and warrant that (a) all conditions and requirements to be undertaken by landlord under the lease with respect to construction have been completed, (b) all improvements have been approved and accepted by tenant, (c) all utility sources and utility companies which service the property have been approved and accepted by tenant and utility service is available, (d) the tenant is in occupancy pursuant to the lease, (e) if applicable, the parking spaces provided at the property are acceptable and in compliance with the terms of the lease, (f) the tenant has no offsets, counterclaims or defenses with respect to its obligations under the lease, and (g) there are no punch-list items or finish work which remain to be completed by landlord.  

The tenant should specifically acknowledge that the buyer and its proposed lender (if any) are relying on the estoppel letter in connection with the buyer’s purchase of the property.  

These assurances cover most of what a buyer would want to know, but all leases are different. Some statements may not be necessary. If a lease has an unusual clause or another provision that is significant to the buyer, or if the lease contains any ambiguities that deserve clarification to preclude a future dispute with the tenant, statements should be added to the estoppel letter to address them.   

When received, estoppel letters should be carefully reviewed by the buyer to identify any issues and their potential significance, taking into account what the purchase contract says about “acceptable” estoppels. If the issues are serious enough to affect the economics of the transaction, the buyer may wish to terminate the contract if the seller is not obligated to cure them and refuses to do so, or if the seller does not provide an appropriate purchase price adjustment.  

This article is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read here. Please review the full disclaimer for more information. Relying on the information provided in this article or communicating with Lowndes through our website does not create an attorney/client relationship.

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What Is An Estoppel Certificate? A Real Estate Must-Know

An estoppel certificate confirms the terms of an existing lease, protecting the rights and interests of landlords, tenants, and buyers in real estate transactions. This article explores its significance, how it is used, and the legal implications of its completion or non-compliance.

Table of Contents

Imagine you’re on the brink of purchasing a commercial building, and the seller assures you that all tenants are current on their rent and that there are no disputes. But how can you be sure without any formal documentation?

This is where an estoppel certificate comes into play, benefiting both the landlord and the tenant by providing formal documentation. An estoppel certificate, often called an estoppel letter, is a document that confirms the terms of an existing lease agreement, protecting the rights and interests of all parties involved.

This article discusses the intricacies of an estoppel certificate, why it holds significance for landlords, tenants, and prospective buyers, and the implications of its completion or non-compliance.

What is an estoppel certificate?

An estoppel certificate is used in real estate and mortgage activities, especially when the landlord plans to sell or refinance the property. It confirms that tenants will adhere to their lease terms under new ownership and is part of the due diligence process in both residential and commercial transactions.

Upon providing information about the current status of their lease agreement, tenants need to sign an estoppel certificate to validate it. Once the information within the certificate is validated, rental property owners are protected from tenants making contradictory claims about their lease agreement, as they have the confirmation of the current terms in writing.

Reasons landlords require estoppel certificates

Landlords rely on estoppel certificates for several key purposes:

• Verification of lease details : These certificates certify the specifics of a lease, such as rent amount, lease duration, and any verbal agreements, ensuring tenants adhere to their obligations.
• Transaction facilitation : They provide essential lease information to potential buyers, lenders, and investors who are assessing the property, streamlining property transactions.
• Legal protection : By having tenants sign these certificates, landlords secure written confirmation of the lease terms, which protects against future claims by tenants about different terms and helps prevent misunderstandings.
• Financial evaluation : The certificates are used to assess tenants’ financial stability, which is crucial information for lenders and investors to determine the reliability of rent payments.
• Lease updates : They help maintain current records by documenting any changes or amendments made to the original lease agreement.

Advantages of estoppel certificates in real estate transactions

Beyond landlords, estoppel certificates offer significant advantages to other parties involved in real estate transactions, such as buyers and lenders. They play a vital role in ensuring transparency and minimizing risks, making them indispensable in property transactions:

• For buyers : They provide a clear and verified account of the existing lease terms, ensuring there are no undisclosed agreements that could impact the property’s value. This level of transparency allows buyers to make well-informed purchasing decisions.
• For lenders : These certificates confirm the financial reliability and lease obligations of tenants, thereby minimizing the risk associated with property loans. They also streamline the transaction process and enhance the efficiency of securing financing.

Are tenants required to complete an estoppel certificate?

Whether residential tenants must complete an estoppel certificate depends entirely on the provisions in their lease agreement.

If the lease contract contains language mandating that the tenant sign and return an estoppel certificate when requested, they are legally obligated to comply. Refusing to provide a complete and accurate estoppel certificate required, in such cases, would violate the lease.

However, involvement is voluntary if the agreement does not expressly require participation. In these situations, tenants should thoroughly review the document to understand any risks before signing.

Recommended steps include carefully examining the contents, confirming all details match lease agreement terms, and potentially consulting a real estate attorney .

What's in a tenant estoppel certificate?

A tenant rental information declaration is a document a tenant completes and signs when a rental property is up for sale. This document requests information about the rights and privileges of existing tenants, including rental amount, lease terms, protected tenancy status, oral agreements with the landlord, amendments to written lease agreements, promises made by the landlord, and agreements concerning the payment of utilities.

These legally binding certificates contain a comprehensive overview of the details of the rental agreement. Standard contents include:

• Tenant’s full legal name and contact information.
• Lease start and end dates, including any provisions for renewal or termination.
• Rental amount, frequency of payments, and any provisions for monthly rent abatement or adjustments.
• Security deposit details, including the initial amount and any deductions made.
• Any modifications or amendments to the original lease agreement.
• Information on any improvements or alterations the tenant makes to the leased premises.
• Confirmation of rent payment status, including any outstanding balances.
• Disclosure of ongoing litigation or disputes involving the tenant and the landlord.
• Any additional agreements or concessions between the tenant and the property owner that impact the lease terms.
• Details of any subleasing or assignment arrangements.
• Any other relevant information or representations made by the tenant that may affect the terms of the lease.

How to prepare an estoppel certificate

Creating an accurate and thorough estoppel certificate is essential for landlords and tenants. Follow these steps:

• Review lease agreement : Start by reviewing the current lease agreement to ensure all terms and conditions are clear.
• Gather necessary information : Collect details such as lease start and end dates, rent amount, security deposit, and any modifications.
• Fill out the certificate : Complete the estoppel certificate form with the gathered information, ensuring accuracy.
• Cross-check details : Verify all information against the lease agreement to avoid discrepancies.
• Tenant review and signature : Have the tenant review the certificate for accuracy and sign it.
• Notarization (if required) : Some certificates may need to be notarized. Check the requirements and proceed accordingly.
• Submit the certificate : Provide the completed and signed certificate to the requesting party within the stipulated timeframe.

By following these steps, landlords and tenants can ensure the estoppel certificate is accurate, reducing the risk of future disputes and facilitating smooth property transactions.

Common mistakes in estoppel certificates

Even experienced landlords and tenants can make mistakes when completing estoppel certificates. Common errors include providing incomplete information, such as missing details that can invalidate the certificate.

It's crucial to ensure all required fields are accurately filled out. Another frequent mistake is including inaccurate lease details; it's essential to double-check lease terms, rent amounts, and dates to avoid discrepancies.

Additionally, failing to review lease documents thoroughly can lead to inconsistencies between the estoppel certificate and the lease agreement. Finally, ignoring off-lease arrangements is a common oversight; including any verbal agreements or side arrangements provides a complete picture.

Avoiding these mistakes ensures a smoother transaction process and protects both parties from future disputes.

Legal implications

Estoppel certificates hold significant legal weight in real estate transactions. For example, consider a tenant who claimed they had no outstanding rent payments. If an estoppel certificate later revealed unpaid balances, the tenant could face legal consequences for providing false information. This highlights the importance of accuracy and the potential legal ramifications of inaccuracies.

Inaccuracies or omissions in these documents can lead to legal disputes, financial liabilities, and breach of contract claims. For landlords, an accurate estoppel certificate provides protection by affirming the lease terms and tenant obligations, ensuring no hidden issues arise during property sales or refinancing.

For tenants, it secures their rights and lease terms, preventing landlords from making unauthorized changes. Therefore, both parties must ensure the information is correct to avoid potential legal and financial consequences.

Property types that require an estoppel certificate

Now, let's explore the types of properties that often require an estoppel certificate:

Multifamily properties

Multifamily properties like apartment complexes or condominium buildings need estoppel certificates to verify certain details about each tenant's lease, such as the terms, rent and security deposit amounts, and any outstanding balances.

Residential properties

Residential real estate encompasses single-family homes, townhouses, and other similar dwellings. Frequently, properties require estoppel certificates when they belong to a homeowners' association (HOA) or when a community with specific covenants, conditions, and restrictions governs them.

In the case of residential properties, obtaining an estoppel certificate validates the property owner's compliance with the HOA rules and regulations, outstanding dues, assessments, and any pending litigation related to the property.

Commercial real estate

Commercial property types, including offices, retail stores, warehouses, or industrial facilities, require an estoppel certificate to validate commercial leases.

These certificates verify the details of commercial lease terms for potential buyers and lenders. They allow them to evaluate a tenant's financial standing by confirming lease details like rental rates, concessions, maintenance obligations, and any outstanding balances, such as unpaid back rent payments.

Estoppel certificates also require disclosing any ongoing legal disputes between the commercial tenant and landlord. It gives prospective buyers and lenders greater awareness of potential risks or liabilities related to inheriting new commercial tenants through property acquisition.

Accounting for off-lease arrangements

While formal lease agreements contain the primary tenancy terms, landlords and tenants often make supplementary verbal agreements that significantly impact the rental experience. When creating a tenant estoppel certificate, it's essential to document any informal arrangements not mentioned in the written lease.

Examples of key details that you may have agreed upon verbally include:

• Subletting arrangements.
• Exclusive outdoor space usage.
• Pet permissions.
• Rent payment adjustment for maintenance.
• Storage area access privileges.
• Designated parking spaces.

Capturing these supplemental agreements provides a comprehensive view of all obligations and rights negotiated between the tenant and landlord. The estoppel certificate should reflect the full scope of the rental relationship, both written and verbal.

Timeframes associated with the submission of estoppel certificates

In transactions where estoppel certificates are required, the timing and deadlines for submission can vary significantly based on several factors. These factors may include the jurisdiction's legal requirements, the terms outlined in the lease agreement or contract, and the parties' specific needs in the transaction.

• Lease agreement provisions : Often, lease agreements contain clauses specifying the timeframe within which tenants must provide estoppel certificates upon request from the landlord or new property owner. These provisions may outline submission deadlines to ensure the timely completion of due diligence processes.
• Sale or refinancing timeline : In property sales or refinancing transactions, there are typically established timelines for completing due diligence activities, including obtaining estoppel certificates. Deadlines for submitting estoppel certificates may be aligned with key milestones in the transaction timeline to facilitate a smooth and timely process.
• Legal requirements : Some jurisdictions may have specific statutes or regulations governing the submission of estoppel certificates in real estate transactions. These laws may stipulate timeframes or deadlines for providing estoppel certificates, ensuring compliance with legal requirements, and protecting the interests of all parties involved.
• Negotiated agreements : In certain cases, parties involved in a real estate transaction may negotiate specific deadlines or timeframes for submitting estoppel certificates as part of the overall terms of the deal. These negotiated agreements reflect the parties' mutual understanding and agreement regarding the timing of documentation submission.
• Lender or investor requirements : Lenders or investors involved in real estate transactions may have their own requirements and timelines for obtaining estoppel certificates as part of their due diligence process. These requirements may be communicated to all parties involved in the transaction to ensure timely compliance.

Landlords, tenants, buyers, sellers, and other stakeholders must be aware of any specific timeframes or deadlines associated with submitting estoppel certificates in their transactions.

What happens if the tenant doesn't sign or return an estoppel certificate?

Refusing to sign an estoppel agreement can create significant issues for both the tenant and landlord:

• Transactions hindered: Not having a signed estoppel certificate delays or complicates lease-related transactions like property sales, refinancing , or lease assignments. These deals rely on the estoppel for accurate lease details.
• Potential lease violation: Depending on the lease terms, failing to sign an estoppel letter may breach the agreement if participation is required, prompting fines, fees, or even eviction .
• Limited tenant protection: Without a signed certificate, tenants lose a key form of lease documentation. As a result, they are less protected in lease disputes and have limited recourse.
• Lack of clarity on lease status: Without clear tenant validation, lease commitments and obligations between tenant and landlord are ambiguous.

If the tenant refuses to sign the estoppel letter, landlords can consider the following options before escalating matters:

• Provide the tenant more time to review the estoppel certificate and voice any concerns. Offering an extension can help gain cooperation.
• Suggest reviewing the estoppel certificate together and have the tenant propose edits to reflect their understanding. Showing that you value their opinion can result in an agreement.
• As a last resort, consult an attorney to pursue legal action if the tenant blatantly violates a lease requirement. However, in many cases, simply maintaining open communication can yield a resolution.

Overall, this gives rental property owners alternatives to explore if a tenant won't sign initially. With some flexibility and patience, a resolution may be reachable.

Understanding the estoppel certificate

Estoppel certificates enable smooth deals and prevent avoidable disputes in real estate transactions. They provide a legally binding verification of lease terms that protects the interests of landlords, tenants, buyers, and lenders.

While requirements vary based on specific lease agreements, obtaining a tenant estoppel certificate benefits all parties by confirming rental details and obligations upfront.

You can now confidently navigate transactions by knowing the purpose of estoppel agreements, the essential contents, the types of properties impacted, and the consequences of not participating.

Important Note: This post is for informational and educational purposes only. It should not be taken as legal, accounting, or tax advice, nor should it be used as a substitute for such services. Always consult your own legal, accounting, or tax counsel before taking any action based on this information.

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of NicsGuide.com, a blog dedicated to real estate investing.

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Estoppel Certificate

What is an estoppel certificate.

An estoppel certificate establishes the current status of the lease terms for a third party. Generally, the certificate requests that the Tenant verify that the rent is current or whether the Tenant has any potential claims against the Landlord. The certificate is generally used when the landlord or the building owner is selling the building or refinancing the mortgage.

How should an estoppel certificate be handled?

Answer all questions on the form. For a copy of the lease, contact the Office of Administrative Counsel ("Administrative Counsel)" at [email protected] or 202-225-6969.

Please ensure that:

• The amount of Security Deposit is $0.
• If the certificate includes a phrase such as "the lease constitutes the entire agreement," the office inserts "and District Office Lease Attachment" after "lease." After editing, the sentence should read: "…the lease and the District Office Lease Attachment constitute…"
• The most recent rent payment has been made. To confirm, call the Finance Office at 202-226-1203.

Does the Member need to sign the certificate?

Generally, a designated representative of the Member may sign unless the document or the landlord specifies otherwise.

Should Administrative Counsel review the certificate?

Yes. Send a copy to [email protected] or submit via fax at 202-226-0357. We generally can review it usually within a day or two.

What is the time frame for returning the certificate to the Landlord?

The certificate should be returned on or before the date requested.

Estoppel certificates: to sign or not to sign, that is the question

Global |  Publication |  June 2018

As part of the due diligence process involved in a real estate transaction, the potential buyer or creditor will typically review the leases affecting the property and ask the current landlord to have its tenants sign an "estoppel certificate" in which the tenants will describe the status of the lease and claims, if any, that they may have against the landlord. 1

On August 10, 2017, the Ontario Superior Court issued a decision that deals with the importance and enforceability of an estoppel certificate. 2

1960529 Ontario Inc. v. 2077570 Ontario Inc.

In this case, a company was running a business as a bar and game arcade (the Tenant) and was leasing premises in a property in Toronto (the Property) belonging to the landlord (the Landlord). The Tenant’s lease contained a right of first refusal provision under which, in the event the Property was to be sold, the Landlord would need to provide the Tenant with a copy of the offer to purchase prior to accepting the offer, in which case the Tenant would have 24 hours to submit an equivalent offer to the Landlord. On October 17, 2016, the Landlord entered into an agreement with a buyer (the Buyer) for the purchase of the Property. On February 14, 2017, the Landlord notified the Tenant of the sale of the Property and made it sign an estoppel certificate in which the Tenant admitted, among other things, that the Landlord was not in default under the terms of the lease and the Tenant had no claim against the Landlord based on the terms of the lease. On February 17, 2017, the Landlord sold the Property to the Buyer. On February 21, 2017, the Buyer gave the Tenant a notice of termination of the lease, requiring it to leave the leased premises no later than February 28, 2018, the whole in accordance with a demolition provision included in the lease. On March 23, 2017, the Tenant brought a motion for declaratory judgment and injunctive relief in support of its claim for enforcement of its right of first refusal.

In its analysis regarding the decision as to whether or not to grant the Tenant a provisional interlocutory injunction, the court stated that parties to a commercial real estate transaction are entitled to rely upon an estoppel certificate to prevent the party signing the certificate from taking a position that is contrary to the statements therein. 3 The court continued by explaining that when the Tenant’s representative signed the estoppel certificate and gave it to the Landlord, it should have known that the parties affected by the sale of the Property would rely on the contents thereof. 4

Furthermore, the court stated that it would be unfair to accept the Tenant’s claim that the Landlord was in breach of its obligations relating to the right of first refusal provision after the Tenant had signed the estoppel certificate in which the Tenant stated the Landlord was not in default under the lease and that it had no claim against said Landlord. 5 The court therefore confirmed that, by signing the estoppel certificate, the Tenant was waiving the rights granted to it by the right of first refusal provision.

Finally, the court concluded that because of the legal effect of the estoppel certificate, it would not grant the injunction requested by the Tenant. 6

Even if this is an Ontario judgment, Quebec jurisprudence shows that the same principle applies in Quebec.

Enforceability of an estoppel certificate in Quebec

In certain decisions, when the court is asked to interpret the terms of a lease, it relies, among other things, upon an estoppel certificate as additional evidence. 7

However, in a 2015 Superior Court of Quebec decision, the court addressed the applicability of an estoppel certificate in connection with a breach of the terms of a lease. 8 In this case, the owner, through its property manager, sought damages against a tenant who operated a restaurant in the owner’s building. The owner alleged that the tenant made false representations regarding the term of its lease in an estoppel certificate signed by the tenant. It is important to note that there were two leases in force between the tenant and the owner, a French lease with an end date of March 30, 2014 and an English lease with an end date of November 30, 2014. Prior to purchasing the building, the owner relied upon an estoppel certificate signed by the tenant in which the tenant admitted that its lease had a termination date of November  30, 2014, the end date of the English lease. It was when the tenant terminated its lease on March 30, 2014, in accordance with the term of the French lease, that the owner sought damages against it.

After assessing the evidence, the court determined that the lease in force between the tenant and the owner was in fact the French lease. 9 Concerning the issue of the estoppel certificate, the court mentioned that the fault was with the tenant, who knew or should have known that potential hypothecary creditors or purchasers of the building would rely on the statements made in said certificate, even if the lease in force actually had a termination date of March 30, 2014. 10 Consequently, the damage suffered by the owner was equivalent to eight months of rent, i.e. the difference between the term of the French lease and that of the English lease. More importantly, the court stated that the amount to be awarded as damages must reflect the amount of rent indicated in the estoppel certificate, despite the fact that this amount differed from that specified in the lease in force. 11

It is therefore apparent from this case that, under the circumstances and notwithstanding the explicit wording of the lease in force, the terms of the estoppel certificate may prevail, given that it is a legal document on which the parties to a transaction are reasonably entitled to rely upon.

It is relevant to mention that, in a Quebec Court of Appeal judgment, 12 the court stated that an estoppel certificate constitutes an extra-judicial admission that can be revoked only through evidence of an error of fact by its author. With the weight of the extra-judicial admission being left to the court’s discretion, the court must choose the most plausible version between the evidence on file and the estoppel certificate. In this case, despite the tenant’s claims to the effect that the landlord had not performed work properly, the tenant had signed an estoppel certificate that acknowledged the opposite, i.e. that the owner’s work had been carried out properly and all the obligations under the lease had been fulfilled. The trial court had determined, following an analysis of the lease terms, that the work in question had been carried out properly, and it added the tenant had confirmed it by signing the estoppel certificate. The court stated that it shared the trial judge’s opinion and confirmed that said judge had not committed an error by finding that the tenant had signed the estoppel certificate, in full knowledge of the evidence, in which it expressly acknowledged that the owner had complied with all of its obligations and that the tenant could not then deny what it had explicitly acknowledged. 13

In light of the foregoing, it is important for tenants to ensure that the certificates they sign are consistent with the lease, failing which they could find themselves in a position in which they have to waive their rights set out in their lease or even be required to compensate parties who relied upon said certificate. Furthermore, the estoppel certificate represents a valid legal document or an extra-judicial admission by the party signing the estoppel certificate, and such evidence could work against tenants in the event of a dispute.  

1  René Gauthier, "Les règles générales applicables à tous les baux," in Jocelyne Temblay, coord., Obligations et contracts , Collection de droit 2017-2018, Vol. 6, Cowansville (Quebec), Éditions Yvon Blais/École du Barreau du Québec, 2017, p 267.

2  1960529 Ontario Inc. v 2077570 Ontario Inc ., 2017 ONSC 5254.

3  Ibid ., at para 44.

4  Ibid .

5  Ibid ., at para 45.

6  Ibid ., at para 73.

7  IMS Health Canada Inc./IMS Santé Canada Inc., v Trans-Edmond Development Inc./Développement Trans-Edmond Inc ., 2013 QCCS 5357 and The Forum Entertainment Centre Company v Cinegrand Montreal Inc., 2004 QCCS 1347.

8  Gestion Elm Bishop Inc., v Farias , 2015 QCCS 6545.

9  Ibid ., at para 34.

10  Ibid ., at para 40.

11  Ibid ., at para 73-75.

12  Cinegrand Montreal inc. v Forum Entertainment Centre Company, 2006 QCCA 1579.

13  Ibid ., at para 63-65.

• Montréal

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• Real estate

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