A request for an estoppel certificate can illustrate the tension that exists between a landlord and tenant. An estoppel certificate contains a certification as to specific facts. So, for example, when a landlord refinances an office building or shopping center, the landlord’s lender may require that the landlord obtain estoppel certificates from all tenants. A tenant’s estoppel certificate typically will confirm that the lease is in full force and whether the landlord is in default, and it will include various other facts, such as duration of the term, rent, rights of renewal and similar points that are important to a lender.
If a tenant is diligent in its communications regarding the property and the lease, then the landlord should not be surprised if the estoppel certificate indicates a landlord default. If, however, the tenant has not notified the landlord previously of some failure to perform and the tenant lists various defaults in the estoppel certificate, the news will be both alarming to the landlord and a threat to closing.
Some tenants innocently deliver this information for the first time in an estoppel certificate. They are busy running their businesses and may not have taken the time previously to confirm that the landlord has been meeting its obligations. For these tenants, the request for an estoppel certificate triggers a more detailed review, as they cannot risk delivering a clean estoppel certificate – one which does not mention a landlord default – if there is a default outstanding because they may not be able to make a claim in the future for such a default. The tenant may still have protection if the receiving party knows that the information included is untrue due to the omission of certain facts, as such party may not rely on false information to prevent a later claim, but it is a risk for the tenant to rely on such knowledge.
Other tenants may see the request for an estoppel certificate as an opportunity. They know that the landlord is under a tight time frame to close its loan, and rather than argue over a sudden complaint or repair request the landlord may merely complete the task to obtain the clean estoppel certificate. This leads these tenants to make requests that are not obligations of their landlords under their leases.
In our experience, such actions by a tenant are a mistake. If the tenant issuing the demand is a major tenant, then it has sufficient leverage to request repairs at any time without threatening to hold up a closing. However, if the tenant is using its leverage either to gain something unreasonable or merely because it failed to perform its diligence on a regular basis, the landlord will understand what is happening and may react accordingly. It is also notable that in certain jurisdictions, the tenant may be liable for damages for the interest savings lost by the landlord if it is unable to close its loan.
Even if the landlord agrees to an unreasonable demand, the delivery of the clean estoppel certificate by the tenant may not resolve the issue from the landlord’s perspective. When the tenant has its own request in the future, whether for an estoppel certificate or anything else needed from the landlord, it may find that the landlord has become less amicable. For that reason any landlord or tenant that sees the delivery of an estoppel certificate as a tool rather than an obligation should be prepared for all possible responses.