The role of an estoppel certificate in a lease relationship
An estoppel certificate is a signed statement usually by a party to a commercial lease certifying as true particular facts related to the lease or other main contract. Also called an offset statement in some contexts, the estoppel certificate is usually required of a commercial tenant or lessee when the leased property is being sold or the lease assigned to another party.
The transfer of interest to the third party is made in reliance on the existence of the circumstances set out in the estoppel certificate. For example, the leasing party usually memorializes in the certificate current major facts such as the dates the lease began and will end, whether rent is in arrears or up to date, the amount of rent or how it is calculated, any options to renew or extend the lease and when they must be exercised, any subleases and their terms, and so on.
Subsequent purchasers or assignees of the landlord or owner must be able to rely on these facts as the basis for setting a purchase price or negotiating other key terms, and in calculating the economic benefit of the arrangement going forward. The estoppel certificate in important ways becomes the basis for the new relationship vis-à-vis the current status of the pre-existing lease or mortgage.
For these reasons, it is important that any lessee or tenant asked to complete an estoppel certificate be extremely careful as to the accuracy of included facts because a landlord, assignee or subsequent purchaser of a related interest could rely on the representations as true to its detriment and seek legal recourse against the signer if a certified fact turns out to be false or inaccurate.
Before certifying anything to a third party, the drafting or signing party should seek out legal counsel with experience in commercial leases for assistance with determining what facts are in existence and with drafting the correct language for the estoppel certificate. Likewise, any party who acts to its detriment in reliance on an estoppel certificate should seek the advice of a real estate lawyer to understand whether legal action is possible to enforce the terms of the certificate.
In California, courts have held that estoppel certificates are written instruments the contents of which are presumed to be true for evidentiary purposes. Based on this rule, the California Court of Appeal in the important case of Plaza Freeway Limited Partnership v. First Mountain Bank found that the lease termination date set forth in the commercial renter’s estoppel certificate was conclusive and that the renter’s exercise to renew the lease was late because it did not comply with the requirement that it be exercised 12 months before that date.
Representing the landlord in that case was the Southern California business law firm of Klein & Wilson that assists clients with leases, estoppels certificates and a wide variety of other commercial matters.
Mark Wilson, a trial attorney, has won nearly every case he has tried or arbitrated. He lost only one jury trial and obtained a complete reversal on appeal. Mr. Wilson represents clients in business litigation and legal malpractice cases and was named in the 2017 – 2020 SuperLawyers Top 50 Orange County lists. Mr. Wilson is a California State Bar certified specialist in Legal Malpractice Law and can be reached at 949-239-0907; [email protected]; https://www.kleinandwilson.com