Real Estate Articles

ESTOPPELS

Written by Brent Pace for Gaebler Ventures

As you lease office space, there is a chance that your Landlord will sell the building you are in to another company. This means that you will have to sign an estoppels certificate. In this article we discuss what an estoppel certificate is and why it's nothing to be afraid of.

Getting through the lease signing process and moving in to your new space was probably an arduous task.

No doubt it took months to accomplish, but you finally came to terms with your new Landlord. Imagine your surprise then, when a few months later your Landlord sends you an estoppels certificate to sign and informs you that the building is going to be sold to a new Landlord. What does this mean for you and your fledgling enterprise? Don't worry, signing that estoppel doesn't waive any of your rights, and it merely helps your new Landlord to be sure of what he's buying.

Due Diligence

When a buyer investigates a property to purchase they start their due diligence. The current Landlord will often provide a variety of information including the tenants in the building, lease terms, lease rates, etc. But how can a new Landlord be sure that the information is accurate? That's where estoppels certificates come in.

What's An Estoppel Certificate?

An estoppels certificate is basically a piece of paper you sign that states that you are in good standing with your Landlord and that the lease you signed is still in full effect. The estoppel itself may have a few lines for you to fill in that describe your term and rental rate. In addition, the estoppels will probably require you to state that you have not sublet your space or in any other way modified the contract between you and your current Landlord.

In most cases you fill out the estoppels and return it to the Landlord within a few weeks of the request. Signing the estoppel helps certify that the information your Landlord has been providing to a potential buyer is true and accurate.

It's In Your Lease

Go back and look carefully at your lease agreement for your space. Most likely it discusses estoppels. Here is a sample paragraph describing the estoppels certificate taken from a typical office lease:

1. Landlord's Right to Estoppel Certificate. Tenant shall, within fifteen days after Landlord's request, execute and deliver to Landlord a written declaration, in form and substance similar to Exhibit "X" (a sample estoppels at the back of your lease), in recordable form: 1) ratifying this Lease; 2) expressing the Commencement Date and expiration date hereof; 3) certifying that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended; 4) that all conditions under this Lease to be performed by Landlord have been satisfied; 5) that there are no defenses or offsets against the enforcement of this Lease by the Landlord; 6) the amount of advance rental, if any, paid by Tenant; 7) the date to which rental has been paid; 8) the amount of security deposited with Landlord; and 9) such other information as Landlord may reasonably request. Landlord's mortgage lenders and/or purchasers shall be entitled to rely upon such declaration.

2. Effect of Failure to Provide Estoppel Certificate. Tenant's failure to furnish any Estoppel Certificate within fifteen (15) days after request therefore shall be deemed a default hereunder and moreover, it shall be conclusively presumed that: a) this Lease is in full force and effect without modification in accordance with the terms set forth in the request; b) that there are no unusual breaches or defaults on the part of the Landlord; and c) no more than one (1) month's rent has been paid in advance.

Don't worry about the estoppel, just make sure you are in good standing with your Landlord and sign and return it. If the sale goes through the new Landlord will be obligated to fulfill the terms of your lease as the designee of your old Landlord.

Brent Pace is currently an MBA candidate at University of California at Berkeley. Originally from Salt Lake City, Brent's experience is in commercial real estate development and management. Brent will have tips for small business owners as they negotiate their real estate needs.

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