In the Spotlight: Landlords Should Not Overlook the Importance of Estoppel Certificate Provisions

Estoppel Certificate Provisions are usually given little, if any, attention during lease negotiations. As long as a lease contains basic language requiring a tenant to provide an estoppel certificate from time to time, most parties to a lease negotiation simply gloss over the provision and move on to weightier issues. In certain situations, particularly where a tenant is the major, if not the only, tenant of a particular real estate project, a landlord seeking to sell or refinance its asset needs to be in the position of requiring the tenant to timely deliver an estoppel that will pass muster with its lender or purchaser (and such purchaser's lender). Landlords should ensure that their leases clearly require the tenant to execute an estoppel, either in an agreed-upon form that is attached to the lease or containing very specific information enumerated in the lease and other information that may be reasonably requested by a prospective lender/purchaser. The provision should have clear timeframes for the tenant's compliance and, in the situation where a landlord has the leverage, specific penalties for the tenant's failure to comply. In situations where the landlord anticipates that a tenant may be less than forthcoming in its cooperation, the landlord may seek to add a provision pursuant to which the tenant indemnifies and holds the landlord harmless from all losses arising out of the tenant's failure to strictly comply with the estoppel provisions. This “anti-shakedown” remedy will give the landlord additional leverage in situations where the tenant is tempted to hold back its cooperation in the estoppel process in the hope of extracting concessions from the landlord in exchange for its cooperation.

Estoppel Certificate Provisions are usually given little, if any, attention during lease negotiations. As long as a lease contains basic language requiring a tenant to provide an estoppel certificate from time to time, most parties to a lease negotiation simply gloss over the provision and move on to weightier issues. In certain situations, particularly where a tenant is the major, if not the only, tenant of a particular real estate project, a landlord seeking to sell or refinance its asset needs to be in the position of requiring the tenant to timely deliver an estoppel that will pass muster with its lender or purchaser (and such purchaser's lender). Landlords should ensure that their leases clearly require the tenant to execute an estoppel, either in an agreed-upon form that is attached to the lease or containing very specific information enumerated in the lease and other information that may be reasonably requested by a prospective lender/purchaser. The provision should have clear timeframes for the tenant's compliance and, in the situation where a landlord has the leverage, specific penalties for the tenant's failure to comply. In situations where the landlord anticipates that a tenant may be less than forthcoming in its cooperation, the landlord may seek to add a provision pursuant to which the tenant indemnifies and holds the landlord harmless from all losses arising out of the tenant's failure to strictly comply with the estoppel provisions. This “anti-shakedown” remedy will give the landlord additional leverage in situations where the tenant is tempted to hold back its cooperation in the estoppel process in the hope of extracting concessions from the landlord in exchange for its cooperation.