Common Pitfalls in the Drafting and Management of Tenant Estoppels

Tenant estoppel certificates are documents used in commercial real estate transactions where a tenant confirms the terms and status of their lease, providing assurance to prospective buyers, lenders, or investors about the lease’s validity and the absence of defaults. Drafting commercial real estate tenant estoppels, and the ensuing management thereof during purchase and sale or financing transactions can be complex, and several common pitfalls can arise.

In our over 30-year history, Realogic has helped hundreds of clients manage thousands of tenant estoppels. Here are common pitfalls we see that you need to watch out for when drafting and collecting estoppel certificates from tenants to make sure that your transactions are as smooth as possible.

Estoppel Pitfall #1: Lack of Negotiation and Reliance on Boilerplate Forms

Tenants and landlords often fail to adequately negotiate key terms within the lease’s estoppel clause, or the estoppel form itself when included in the lease, during the initial lease negotiation process.

Furthermore, the parties often rely on boiler plate forms, leading to disputes or issues that could have been resolved by the parties at the outset. When possible, it is crucial for both parties to review and agree on the estoppel’s terms and conditions before it is finalized.

Lack of Negotiation

In the context of tenant estoppels, the lack of negotiation refers to situations where the parties involved (typically the landlord and tenant) do not engage in initial discussions to agree on the terms and content of the estoppel certificate. This can lead to several problems:

  • Misrepresentation of Lease Terms: Without negotiation, the estoppel certificate might not accurately reflect the understanding or interpretation of lease terms by both parties. This can lead to disputes if one party believes the estoppel misrepresents the actual terms or conditions of the lease.
  • Unaddressed Concerns: Tenants or landlords might have specific concerns or issues they want to be addressed in the estoppel, such as acknowledgments of lease amendments, concessions, or clarifications on lease obligations. Without negotiation, these concerns may not be properly addressed, leading to potential legal or financial issues later.
  • Lack of Flexibility: Negotiation allows both parties to discuss and potentially accommodate each other’s needs, such as extending deadlines for the estoppel’s delivery or including specific clauses that provide clarity or protection. Without this process, the estoppel process is rigid and may not serve the best interests of either party.

Reliance on Boilerplate Estoppel Forms

Boilerplate forms are standard, pre-formatted documents used widely across various transactions to save time and ensure consistency. However, relying too heavily on these forms for tenant estoppels can lead to issues:

  • Generic Content: Boilerplate estoppel certificates may contain generic language that does not account for the unique aspects of a particular lease or property. This can result in key details being omitted or inaccurately represented.
  • Inflexibility: Standard forms are not designed to accommodate the nuances of every lease agreement. They may lack provisions for specific terms, conditions, or agreements made between the tenant and landlord, leading to a lack of comprehensive coverage in the estoppel.
  • Legal Risks: If a dispute arises, a boilerplate estoppel certificate may not provide sufficient detail or clarity to protect the parties’ interests. This can lead to legal challenges, especially if the estoppel fails to accurately reflect the lease terms or the parties’ intentions.
  • Missed Opportunities for Clarification: Customizing the estoppel certificate allows parties to clarify ambiguous lease terms or conditions. Relying on a standard form misses this opportunity, potentially leading to misunderstandings or disputes in the future.

To mitigate these risks, it’s essential for both landlords and tenants to engage in negotiations over the estoppel certificates and to customize these documents to reflect the specific terms and conditions of their lease agreements accurately. Legal review and advice are often crucial in this process to ensure that the estoppel certificates are legally sound and provide adequate protection for all parties involved.

Estoppel Pitfall #2: Inaccurate Information and Omission of Key Details

Inaccurate information in tenant estoppels can lead to significant misunderstandings, disputes, and legal issues in ensuing commercial real estate transactions. Here are some examples of inaccuracies that are often found in tenant estoppels:

  • Lease Commencement and Expiration Dates: Incorrectly stating the start or end dates of the lease term can affect rights related to lease renewals, terminations, and other time-sensitive provisions.
  • Rent Amounts: Misstating the current rent amount, including base rent, escalations, or additional rents (such as CAM charges, insurance, and taxes), can mislead parties about the lease’s financial terms.
  • Security Deposits: Incorrect information about the amount of the security deposit held, or failing to acknowledge that it has been returned or partially applied, can cause disputes at the lease’s end.
  • Lease Amendments or Modifications: Failing to acknowledge or accurately represent amendments, modifications, or side agreements that alter the original lease terms can lead to enforcement issues.
  • Maintenance and Repair Obligations: Incorrectly stating which party is responsible for specific maintenance and repair duties can lead to disputes over property conditions and compliance with lease terms.
  • Exclusive Use Rights: Misstating or omitting exclusive use provisions can lead to conflicts, especially if a new tenant infringes on those rights based on inaccurate estoppel information.
  • Notice of Default: Incorrectly stating that there are no existing defaults under the lease, or failing to disclose ongoing disputes or issues, can mislead prospective buyers or lenders about the lease’s status.
  • Right of First Refusal or First Offer: Failing to accurately disclose rights of first refusal or first offer on additional space or property purchases can affect leasing and sale opportunities.
  • Improvement Allowances and Tenant Improvements: Inaccurate information about the completion of tenant improvements or the use of improvement allowances can misrepresent the property’s physical condition and financial obligations.
  • Utilities and Services: Incorrectly describing the utilities and services provided under the lease or the tenant’s obligations regarding these can lead to misunderstandings and additional costs.

Addressing inaccuracies in tenant estoppels requires careful review and verification of all lease documents, amendments, and related correspondence. Both landlords and tenants should ensure that the information provided in estoppel certificates is current, accurate, and fully reflective of the lease terms and conditions to avoid potential legal and financial complications.

Estoppel Pitfall #3: Timing Issues

Timing issues with tenant estoppels can significantly impact commercial real estate transactions, leading to delays, increased costs, or even the jeopardization of deals. Here are some common timing-related problems:

  • Delayed Responses: Many commercial leases specify a timeframe within which a tenant must respond to an estoppel request (e.g., 10 days, 30 days). Tenants may not provide the estoppel certificate within the timeframe specified in the lease or requested by the landlord, prospective buyer, or lender. Delays in receiving estoppel certificates can push back closing dates or decision-making timelines. Failure to adhere to these timelines can lead to default under the lease terms, affecting the tenant’s standing and the validity of the estoppel.
  • Transaction Deadlines: Real estate transactions often operate on strict deadlines for due diligence, financing approval, and closing. If estoppel certificates are not provided in a timely manner, these deadlines may be missed, potentially causing the transaction to fall through or incur additional costs.
  • Financing Contingencies: For transactions involving financing, lenders may require estoppel certificates as part of their underwriting process. Delays in obtaining estoppel certificates can hinder loan approvals and alter financing terms, affecting the overall transaction.
  • Renewal and Option Periods: If an estoppel certificate is needed close to a lease renewal or option exercise period, delays in issuing or receiving the estoppel can create uncertainties about the lease’s future terms and the tenant’s intentions.
  • Market Dynamics: In a fast-moving real estate market, delays in obtaining estoppel certificates can result in missed opportunities, as buyers or tenants may move on to other properties if they perceive the transaction as stalled.
  • Coordination with Multiple Tenants: In properties with multiple tenants, coordinating and obtaining estoppel certificates from all tenants within a specific timeframe can be challenging. Delays from even a single tenant can affect the overall timeline for transactions involving the entire property.
  • Last-minute Revisions: Requests for revisions or clarifications to estoppel certificates close to transaction deadlines can create timing pressures. Negotiating and finalizing these changes under tight deadlines can be stressful and risk errors or oversights.

To mitigate timing issues, it’s important for landlords, tenants, and other involved parties to clearly communicate deadlines and expectations regarding estoppel certificates. Proactive planning, including setting internal deadlines ahead of the actual due dates, can help ensure that estoppels are received and reviewed in a timely manner. Additionally, involving legal counsel early in the process can help address any issues or negotiations efficiently, minimizing delays.

Estoppel Pitfall #4: Estoppels Which May Not Be Legally Binding

Tenant estoppels that are not legally binding typically suffer from issues related to their form, content, execution, or compliance with lease requirements and applicable laws. Here are some examples where tenant estoppels might be considered not legally binding:

  • Lack of Required Signatures: An estoppel certificate must be signed by all parties involved, including the tenant and sometimes the landlord, to be legally binding. If the estoppel is not properly signed, it may not be enforceable.
  • Non-Compliance with Lease Terms: If the lease agreement specifies certain requirements for an estoppel certificate (such as a specific form, content, or deadline), and the estoppel provided does not comply with these terms, it may not be considered legally binding.
  • Inaccurate or Incomplete Information: Estoppel certificates that contain inaccurate, misleading, or incomplete information regarding the lease terms, payment status, or other material facts can be challenged and potentially deemed not legally binding, especially if the inaccuracies are significant and affect the parties’ decisions.
  • Failure to Address All Relevant Parties: In situations where there are multiple tenants or a sublease arrangement, an estoppel that does not include or address all relevant parties may not be fully enforceable.
  • Lack of Authority: If the individual who signs the estoppel on behalf of a tenant or landlord does not have the proper authority to do so, the estoppel may be challenged and deemed not legally binding.
  • Failure to Meet Statutory Requirements: In some jurisdictions, there may be statutory requirements for estoppel certificates, such as specific disclosures or forms. Failure to meet these statutory requirements can render the estoppel non-binding.
  • Ambiguity or Vagueness: Estoppels that are overly vague or ambiguous, failing to clearly articulate the lease terms, rights, or obligations, can lead to disputes over interpretation and may not be enforceable.
  • Conditional or Qualified Statements: If an estoppel includes conditional statements or qualifications that undermine the certainty of the lease terms or tenant’s status, it may not serve its purpose and could be considered not legally binding.
  • Failure to Address Future Obligations: An estoppel that fails to accurately reflect the future obligations of the tenant, such as upcoming lease renewals, expansions, terminations, or other material lease terms, might be challenged for not providing a complete picture of the lease obligations.
  • Lack of Recipient Verification: If an estoppel certificate is not properly delivered to or acknowledged by the intended recipient (such as a prospective buyer or lender), its legal effectiveness could be questioned.

A Final Word on Estoppel Certificates

It’s important for both tenants and landlords to ensure that estoppel certificates are carefully prepared, reviewed, and executed to avoid these pitfalls. This often involves legal review and a thorough understanding of the lease agreement and applicable laws to ensure that the estoppel certificates are legally binding and fulfill their intended purpose.

Professional Preparation of Estoppel Certificates

Realogic has been preparing accurate, thorough estoppel certificates for over 30 years. We tailor each estoppel to the project and purpose at hand and because our team has such extensive experience preparing estoppels, we’re able to meet even the tightest deadlines. For more information on our estoppel services, visit the estoppels page on our website.

About The Author

Mike Phelps is Realogic’s General Counsel. Mike has over 20 years of commercial real estate experience, including with financial modeling and analysis, analysis of acquisitions and dispositions, due diligence, underwriting, development and review of financial proformas and Argus/Dyna training. In his current role, he supports each of Realogic’s business lines and provides counsel on corporate, employment and compliance issues. He is also responsible for negotiation of contracts, master service agreements, software licenses and subscriptions and other intellectual property matters. Mike welcomes your comments on his post. He can be reached at