Remember when George told Jerry “it’s not a lie . . . if you believe it.” Well, I am here to tell you that when it comes to estoppel certificates, the truth is paramount no matter what you believe.
Estoppel: a legal principle that bars a party from denying or alleging a certain fact owing to that party’s previous conduct, allegation, or denial. What does that mean? It means that when a party certifies that something is true, they cannot later make a claim that contradicts such certification against another party that relied on those statements. Landlords sometimes request that tenants sign an estoppel certificate, a snap shot of the factual status of a lease. They are usually given for the benefit of a prospective lender or purchaser, who will rely on your statements and prevent you from making claims down the road that are contrary to your certifications. Therefore, it is imperative that each statement be 100% accurate.
So what should you do when you receive this request? Check the lease to see how much time you have to respond and what certifications are required. Limit the certifications to the actual knowledge of a named person who is responsible to complete the estoppel. Make sure that all lease documents, including amendments and side letters, are referenced so that you do not lose the benefit of those documents after a purchase or foreclosure. And, of course, review the lease to make sure that the statements are accurate.
If the estoppel provides that all landlord work is complete, clarify that this is subject to any warranties in the lease. Sometimes the estoppel will contain a statement that there is no default and “no event has occurred which, with the passage of time or the giving of notice or both, would constitute a default.” The additional language should be deleted since any event will become a default with the passage of time or the giving of notice. For example, if you have not paid next month’s rent, it could become a default “with the passage of time” even though it is not currently a default. If the estoppel states that there are no credits due to tenant, be sure to exclude any credits that may be due pursuant to a reconciliation of pass-through charges such as operating expenses, taxes and insurance. Consider adding that the tenant’s certifications do not apply to co-tenancy requirements, exclusives or use restrictions since you will likely not have enough time to verify that landlord is in compliance with these provisions. Finally, include qualifying language that the tenant will not be subject to damages for untrue statements that the estoppel does not amend or waive the tenant’s rights, and that if there is any conflict between the estoppel and the lease, the lease will control.
While estoppel certificates seem mundane and routine, they should be taken seriously to avoid liability and to preserve your rights. Does it really need to be said . . . never take Costanza’s advice when it comes to business.
Marc A. Snyder, Esquire is a member of Kaplin Stewart in the Real Estate Transactions group.