What’s The Purpose of a Tenant Estoppel?
Updated August 17, 2023
Kenwood Management routinely completes commercial property sales. As part of the normal sale process and the due diligence performed by the buyer, we are often required to provide a tenant estoppel certificate for each tenant to execute.
This is a routine and common practice in commercial real estate transactions and financings. However, as a tenant at a commercial property, you may be unfamiliar with an estoppel certificate and its purpose.
Please recognize that your landlord will eventually ask you to sign one of these certificates. If you have not seen one before and wonder what that is, why it is essential, and why you must sign it, keep reading to learn all about it!
What's An Estoppel All About?
What should tenants know about an estoppel? Here are three primary things to know about what this document is for and why it's crucial to sign one if you receive it.
It Takes Place During the Sale of a Building
An estoppel is typically needed during a property sales process. It also applies anytime a property is being financed.
It is a document that summarizes the contractual terms of your relationship with your landlord. It requests that a tenant verifies that the rent is current or if they have any potential claims against the landlord.
It Establishes a Relationship
The estoppel certificate helps establish a relationship between you, as the tenant, and the owner's lender, which otherwise doesn't exist.
The lease establishes a contact between a landlord and a tenant. However, a loan establishes a relationship between a Landlord and a lender. So, since the lender has no relationship directly with a tenant and must reply on information provided by the landlord to support the loan, the estoppel provides a means for the lender to confirm the landlord's data about the lease.
It Is Not a Lease Amendment
Tenant estoppels are not intended to be a lease amendment. It isn't the appropriate document to modify lease terms, rental rates or to add terms to the lease agreement that haven't been previously negotiated.
The document's purpose is to confirm already existing information, terms, and conditions.
It Contains Crucial Information
What should tenants expect to see in an estoppel certificate? These documents typically contain the following information:
Lease dates: When did the lease term begin? When does it expire?
Rental rates: What is the current rental rate?
Abated rent: Does the lease provide for any free rent that hasn't already been used up?
Square footage: What is the area that you lease?
Defaults: Are there any current defaults that should be disclosed?
Security deposits: Is your landlord holding a security deposit, and what is the amount?
Prepaid rent: Have you paid any rent in advance?
Options for renewal, termination, or building purchase: Do you have an option to renew your lease? Do you have the ability to terminate your lease prior to lease expiration? Do you have a right of first offer or right of first refusal on additional space or to purchase the building? If so, what are the terms?
Outstanding tenant improvements the landlord has not completed: Has your landlord performed all work stipulated in your lease? If not, what is outstanding?
Before signing the certificate, carefully review all of this information (and any additional information) to confirm it is correct. If not, contact your property manager or building owner to let them know.
What Should a Tenant Do When Receiving an Estoppel?
When you receive an estoppel agreement from your landlord, do the following things.
Compare It To Your Lease Agreement
Find a copy of your lease and compare the information in the estoppel to your lease terms to ensure all the information is accurate. If you can't find your lease, your landlord can provide a copy to you.
Then, if you find any differences, you should note them on the form. Delete anything that would change or add new terms to your lease.
An estoppel is not supposed to be an amendment to your lease or a waiver of your rights. That being said, make sure all dates are correct, and any options you have are included.
Sign and Notarize the Document
Recognize that you have a specific time frame to review and execute it. This is typically 5-10 days.
Additionally, estoppels frequently need to be notarized. Don't forget to complete this portion!
Have Your Lawyer Review (If You're Not Sure)
Most tenants don't need to spend money to engage an attorney to review an estoppel. Since its sole purpose is to summarize terms already agreed to and doesn't modify anything, there shouldn't be any surprises in it.
However, if you are still uncomfortable signing it without an attorney reviewing it, you should certainly engage one.
Don't Be Intimidated By a Tenant Estoppel Certificate
Tenant estoppel certificates do not have to be intimidating. These are actually very routine documents that are usually part of a standard transaction when a commercial property in Baltimore or DC changes to a new owner or financing.
However, you can call your landlord or the Kenwood Management Company team if you have any questions or need an explanation for the document. Most landlords would be happy to have those conversations with you. With good and open communication, it is possible to resolve any issues you may have and achieve the goal of producing a signed tenant estoppel agreement with minor effort.
At Kenwood, we are here to help our tenants understand the confusing commercial real estate process. If you have any questions, please check out our glossary of terms and videos, or follow us on LinkedIn. If you're interested in becoming a part of the Kenwood Community and leasing space in one of our properties, please let us know!