What You Need to Know About Estoppel Certificates in Commercial Leases

Estoppel certificates (also known as estoppel letters) are important documents used for due diligence in many real estate activities. Read on to learn how this impacts your New York commercial lease

What is an Estoppel Certificate?

An estoppel certificate is a statement, which acknowledges that a commercial lease agreement exists. The tenant’s signature on this will confirm the current status of their lease and confirm that certain details of the lease are valid, including the absence of defaults and the agreement to pay rent (on a specific date) to the landlord. 

It basically lays out the make-up of the landlord and tenant relationship and when the landlord needs to negotiate with a third party when selling the property. Because they are evidence of cash flow, the agreements are of a particular importance to lenders or potential buyers. 

Landlords generally require tenants to sign estoppel certificates as part of due diligence items because they show evidence of cash flow. In these cases, the landlord might have to prove to the lender or potential buyer that the tenant is current in the financial obligations. Then the lenders, and would-be investor/buyers rely on this to show what the landlord said about the monthly deposits is valid and that the term of the lease will be in place. When the tenant signs this document, they are verifying the conditions and status of the lease.   

Must Tenants Sign the Estoppel Certificate? 

Generally, the certificates usually don’t pose any risks for tenants. However, the document isn’t intended to be used in place of a lease, and the tenant should read it thoroughly to note differences. 

If the original lease states that a tenant is required to complete an estoppel certificate, then they are legally required to do so. If tenant doesn’t sign, they can be in breach of the lease and face eviction. In the context of commercial real estate, it’s typically a good idea for the tenant to complete the certificate because it may include details not in the original lease.   

What Are the Benefits to Involved Parties?

The estoppel certificate provides assurance to landlords and lenders that the tenant’s promises are kept. When the landlord and the potential buyer are negotiating, this acts as the purchaser’s due diligence for ongoing cash flow and assists with dodging unexpected expenses.   

For tenants, the certificate provides confirmation that the landlord won’t alter the terms of the lease. It also keeps them in compliance with the lease if the lease requires them to sign an estoppel certificate.

Additionally, the contract has information about upcoming lease extensions and renewals. Estoppel certificates also reveal issues that can indicate if either party has breached any duties over the course of the lease. 

Get Your Estoppel Certificate Questions Answered by an Attorney

Typically speaking, estoppel certificates are a straight-forward feature of commercial leases. However, there are times when they can cause certain issues to spring up that you may need an attorney’s help with. If you have problems in this area, don’t hesitate to get a lawyer involved to answer your questions. Contact us here at MOWK Law for assistance with this and all your New York real estate concerns.