If you are a first-time commercial landlord, you may encounter a tenant estoppel certificate during a property sale, refinancing or another major transaction. The document can be confusing if you have never dealt with one before. Understanding what you may need to review and confirm can help you address potential issues before they affect the transaction.
Here are the key things to understand before you request or sign one.
What a tenant estoppel certificate does
A tenant estoppel certificate asks your tenant to confirm important facts about the existing lease. It gives a buyer or lender information directly from the tenant, which can help them verify the property’s existing lease arrangements as part of a larger transaction.
The certificate does not replace the lease or change its terms by itself. Instead, it records the tenant’s understanding of the existing agreement at a particular point in time.
What it typically confirms
The exact contents depend on the lease and the transaction, but your tenant may be asked to confirm:
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The lease’s start and expiration dates
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Current rent and other amounts due
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Any amendments or extensions
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Whether the tenant has raised claims against you
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Whether either party has allegedly failed to meet its lease obligations
Review these details carefully so the certificate accurately reflects the current terms of your lease.
Why landlords encounter estoppel certificates
You will most often encounter an estoppel certificate when a commercial sale or refinancing requires an outside party to verify the existing leases. A buyer, for example, needs to understand what rights and obligations will continue after acquiring the property.
The certificate can also help a lender evaluate the existing rental arrangements. Depending on the transaction, the buyer or lender may request certificates from some or all of the tenants before closing.
Before requesting a tenant’s signature
Before sending the certificate to your tenant, compare it with the signed lease and any amendments. Check that the dates, rent and other terms match your records and address any known disputes rather than allowing an inaccurate statement to go forward.
Also check whether your lease establishes specific requirements for an estoppel certificate, such as when you can request one or how quickly your tenant must respond. Those provisions can affect how you handle the request during a time-sensitive transaction.
Make sure the lease and certificate line up
Reviewing the certificate alongside your lease can help you catch inconsistencies before they become an issue in a sale or refinancing.
If you are asked to provide one as part of a commercial transaction, discussing the lease, amendments and proposed certificate with an attorney can help you address discrepancies before signing. Taking these steps can help keep this part of the transaction organized and on track.