The Estoppel Certificate in a Commercial Lease

Most commercial leases nowadays include a provision that addresses the subject of estoppel certificates. The provision itself is pretty simple and basically states that tenant agrees to execute estoppel certificates from time to time as requested by landlord. But what is an estoppel certificate to begin with?

An estoppel certificate is a document confirming to third parties that the lease agreement between tenant and landlord is in full force and effect or that neither party is in default, or any other pertinent information regarding the lease agreement.

Estoppel Certificate and Commencement Dates

Estoppel certificates may be requested for different reasons. The most common reason for an estoppel certificate is to affirm the commencement and expiration dates of a lease term. Lease agreements that include any tenant improvement work generally specify the commencement date of the lease term as “the date landlord notifies tenant that the premises are substantially completed and tenant takes possession”. Well, that is not very specific, is it? For this reason, once landlord establishes the date when the premises are going to be “substantially completed,” landlord and tenant execute an estoppel certificate in order to confirm the specific commencement date and expiration date of the lease term.

For example, a restaurant owner signs a lease for a new location on April 13th. The contactor building out the new restaurant space determines that it will take approximately 3 months to finish the work. Around July 13th (3 months later), the contactor informs the landlord that the space will be ready for occupancy on July 20th. Now the landlord can finally prepare an estoppel certificate stating the commencement date of the lease as July 20th.

In addition, such an estoppel certificate will also include a section with tenant’s acknowledgement that all tenant improvements were substantially completed as per the mutually agreed upon space plan and that tenant has taken possession of the leased premises as of the date specified.

Estoppel Certificate and Lenders

Another reason for executing an estoppel certificate may be that the landlord is trying to refinance or sell its property. As a part of their refinance approval process, commercial loan lenders will most likely request estoppel certificates from all tenants at the property confirming that the leases are in full force and effect. If the landlord is selling the property, the estoppel certificates may be requested by the purchaser or the purchaser’s mortgage lender.

Other matters that may be stated in an estoppel certificate include the current rental rate, the amount of security deposit paid by tenant, the square footage of the leased premises, the date of the last rental payment, amendments to the lease (if any), etc. In general, an estoppel certificate may address any provision of the original lease agreement that must be confirmed as true, factual and not defaulted upon by either party but cannot be determined as such by simply reading the lease.