If you own commercial real estate which is tenant occupied and you seek to sell your property or obtain financing secured by the property you will likely be asked to supply your buyer or your lender with an estoppel certificate. So what is it?
Before answering that question we need to define the concept of “estoppel”. In its simplest form, estoppel is a legal doctrine which prevents a party from taking a position which is contrary to a position which they have taken previously, whether by words, deeds or actions. The doctrine of estoppel is intended to prevent legal “flip-flops”.
A purchaser of tenant occupied real estate wants to be certain that the tenant is happy and is paying the agreed rent currently and without dispute. Commercial lenders have the same concern: they want to make sure that the mortgage loan on the commercial real estate does not go into default due to tenant disputes and rent arrearages which prevent the borrower from having the money to pay the mortgage.
Buyers and lenders often require the owner of the real estate to obtain an estoppel certificate signed by the tenant which confirms the following:
- the amount of the monthly rent;
- he commencement date and termination date of the lease and whether there are any options to renew;
- that all rent is paid to date and that no rent has been prepaid; and
- that the owner/landlord is in full compliance with the lease and that the tenant has no claims under the lease.
The obvious purpose of an estoppel certificate is for a potential buyer or lender to receive confirmation from the tenant that the tenant is happy and in full compliance with the lease. Estoppel certificates are useful tools to ensure that the expectations of all parties are met in the case of a sale or mortgage of commercial real estate.
– Kevin Palmer