Estoppel certificates are typically requested from tenants by landlords during a commercial real estate transaction. The most common circumstance is during the due diligence phase when a landlord sells or mortgages their property.
Lenders, investors and prospective buyers use the document to confirm specific details of the tenant’s lease and identify potential red flags. To be effective, landlords should include a provision requiring tenant delivery of an estoppel certificate in the commercial property lease as well as the information that the tenant must provide.
Items generally included in an estoppel certificate
Most buyers and lenders require an estoppel certificate because it verifies material lease terms and conditions and provides proof of the tenant’s cash flow. While the list of required information varies, typical items are:
- The start and end date of the lease
- The amount and date on which the rent is paid
- Statements by the tenant and landlord that no defaults exist
- If defaults by either party exist, tenant must provide details
- Confirmation that the current lease is unmodified and in full force
- The amount of security deposits and interest rates
- Contact information
Each lease is different, but landlords should outline the requested information in the commercial lease as well as the timeframe for the tenant to return a requested estoppel certificate.
What if a tenant refuses to sign?
If an estoppel certificate provision is not included in the lease, a tenant can still sign the document, but is generally not obligated to do so. That is why it is advisable to consult with an experienced commercial real estate attorney to review lease agreements before signing on the dotted line. Some tenants may still refuse to sign even when an obligation exists, but depending upon how the lease is written, landlords generally have different remedies, including:
- Signing the document for the tenant as their “attorney-in-fact.”
- Considering the tenant’s silence or refusal to sign as an acknowledgment that the information is correct.
- Levying a monetary penalty, such as a month’s rent.
- In some cases, litigation or other legal action may be necessary