ESTOPPEL IN COMMERCIAL REAL ESTATE: What Investors Need To Know Before Acquisition II
In our previous edition, we delved into tenant estoppel, the benefits to possessing such certificate as it often is required during the due diligence phase before acquisition by a prospective buyer, and outlined a few basic terms that such certificate usually contains. We stated tenant estoppel ‘is a certificate that prohibits tenants from taking a position different from what is stated in their certificate’. We also highlighted the importance of the certificate in providing valuable information of lease terms and conditions between a landlord and a tenant to a third-party (prospective investor), and its part in guarding against future claim disputes.
If the tenant estoppel is an essential document in other to dispose of one’s right in commercial real estate, then the matter at hand turns to “Is the tenants obligated to sign the estoppel certificate”. A detailed explanation of the tenant’s estoppel obligations, its enforceability, and what the certificate means to the tenant will be the focus of this article; possible remedies will also be discussed.
OBLIGATION OF TENANT TO SIGN AN ESTOPPEL CERTIFICATE
A standard commercial lease will include a provision requiring the tenant to complete and return an estoppel certificate upon the landlord’s request, usually within a relatively short period of time. Some leases provide that if the tenant does not complete the requested estoppel certificate and return it by a certain deadline, the landlord may complete it as the tenant’s attorney-in-fact.
Other leases say that the tenant’s failure to timely return the estoppel certificate is deemed to be an admission that everything set out in the requested estoppel certificate is true. Still, others pronounce that if the tenant fails to deliver the requested estoppel certificate in a timely manner, the tenant must pay a monetary penalty or will be liable for all damages incurred by the landlord as a result of the failure to timely return the estoppel certificate.
Essentially, the forgoing provides there is an obligation on the tenant by the effect of their lease provision to have produced an estoppel certificate on demand so as to ensure a smooth transfer of interest to an acquiring party as a matter of contract law. This requirement can be enforced just like any other contractual provision.
It should be noted though that where such a provision is not put as a provision in a tenant’s lease agreement, the tenant is not required to complete and sign the estoppel agreement (as such signing it in most cases is to the detriment of the tenant).
The bottom line about the tenant estoppel certificate is that it is a powerful tool that every investor should use as part of their due diligence to avoid future surprises from tenants acquired. Also, it is an amazing way to confirm the true facts about a deal before it is executed.
You can always trust us in ensuring all your real estate transactions are carried out seamlessly.
ESV OYEDOKUN EUNICE, ANIVS, RSV