Commercial Lease Estoppel Certificate Disclaimers

By February 24, 2010 Blog, Real Estate Law

Commercial tenants are often asked by their landlords to sign estoppel certificates, usually in connection with the sale or refinancing of the property.  Prospective lenders and buyers do not want surprises, so they seek confirmation directly from the tenant regarding lease matters that could have an impact on their decision to lend or buy.  Matters typically covered include whether the landlord is in default, whether the tenant has any rights to buy the property or extend its lease, whether tenant improvements have been completed to the tenant’s satisfaction, etc.
Estoppel certificates can be dangerous for tenants, since important rights under the lease can be inadvertently waived if an estoppel certificate is improperly filled out.  In a recent trend, larger tenants have begun to protect themselves against this risk by adding broad disclaimers to every estoppel certificate they are requested to complete.  While these disclaimers take many different forms, the basic goal of these clauses is to prevent anything in the estoppel certificate from waiving or adversely affecting any rights of the tenant under the lease, regardless of what is represented and regardless of whether or not the tenant has been negligent in preparing the estoppel.   Here is a link to one such disclaimer clause that is based on one being used by Apple Computer: Estoppel Addendum
These types of waivers can seriously undercut the intended value of obtaining estoppels in the first place, which is to provide assurances to prospective lenders or buyers who will be relying upon the current statements of the tenant.  So, of course, lenders and landlords are fighting back.  We are now seeing many landlords include a form of estoppel certificate as an exhibit to their leases, with a lease clause obligating the tenant to sign that agreed upon form upon request.  And of course the form does not include the tenant-friendly disclaimers.  Landlords are often able to get away with this approach, since they have more leverage at the time the lease is being negotiated than when they are later requesting an estoppel certificate. Unfortunately, this is contributing to the trend toward ever-longer, more comprehensive and more expensive leases.
Remember:
“The man who says he is willing to meet you halfway is usually a poor judge of distance.”              – Laurence J. Peter
Thomas B. Jacob, Real Estate Group

Thoits Law

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  • Sid Hudson says:

    Estoppel certificates are a standard exhibit in all of our commercial leases and yes, there’s also a clause in the lease, stating that tenant agrees to execute one if landlord requests so. I don’t think that an estoppel certificate is too much to ask for from a tenant, however I’ve even seen documents stating that landlord can execute the estoppel certificate on behalf of tenant, if tenant fails to do so within 10 days of notice. Now this is where tenants need to be careful!