Don’t Sign that Estoppel Certificate!

Many tenants receive and Estoppel Certificate at some point during their lease term.  Some tenants just take a quick glance, sign it and send it straight back to the landlord.  Don’t be that tenant!  Not every tenant knows what an Estoppel Certificate (“EC”) is, so here is a brief description: An Estoppel Certificate is a document used to verify the status of an existing lease.  It is typically for the benefit of a prospective buyer or prospective lender on income property.  An EC restates items in a lease, like the parties to the lease, the commencement date, the expiration date, rent, prepaid rent, free rent, security deposit, the tenant improvement allowance and the performance/non-performance of the landlord or tenant.  It is normally used when an owner of commercial property wants to sell or refinance the property.  Most leases have a provision requiring the tenant to sign such a document within 15 to 30 days of receipt.

So why is this important to a tenant?  Sometimes the Estoppel Certificate does not accurately reflect the entire situation that a tenant might enjoy.  It might not include an important amendment that grants the tenant certain rights, it might not list remaining monetary obligations of the Landlord and, it might misstate the tenants rights as it relates to operating expense audits rights.  In the last instance, this is a great time to resolve arguments about what may or not be owed.

To put things in perspective, it is very rare for an institutional buyer of commercial real estate to close escrow without getting EC’s from the primary tenants in a building.  They rely on the facts in the EC to make their investment decision, so I always tell tenants to immediately send an EC to their attorney and/or broker upon receipt.  An EC must be reviewed in detail to make sure it doesn’t contain any mistakes that would compromise the tenant’ rights in the lease.  Certain questions must be asked and addressed:  Has the landlord paid the entire tenant improvement allowance owed under the lease?  Are than any operating expense billings in question?  Is there any free rent left to be taken at a later date?

Sign it! After careful review of the document and the current lease situation, and the revising of the document, if necessary, it is important to sign the EC, if required under the lease.  Most leases will state that if you don’t sign within required time, that statements in the EC are true and correct, without exception.  So, don’t wait until the last minute to deal with this important issue!

*Click on  the example to the left to see what an Estoppel Certificate typically addresses.