What is a Tenant Estoppel and How Does It Work?

By definition, an estoppel certificate is a “signed statement by a party certifying for another’s benefit that certain facts are correct, as that a lease exists, that there are no defaults, and that rent is paid to a certain date. A party’s delivery of this statement estops that party from later claiming a different state of facts. In other words a tenant estoppel is a certified statement by a tenant that verifies the terms and conditions and current status of their lease. Most commercial real estate leases require a tenant to provide an estoppel letter or certificate upon request and this is often a critical step during the due diligence phase of an acquisition and the also during the underwriting of a commercial real estate loan.

Why is this so important? The tenant estoppel provides proof of cash flow, which is ultimately what a potential investor or lender in a property is concerned with. In addition, the tenant estoppel certifies whether any party is in default of the covenants contained in the Lease.

Generally speaking, the word “estop” simply means to prohibit, and a tenant estoppel is therefore a certificate that prohibits the tenant from taking a position contrary to what is stated in their certificate.

 What’s Included in a Tenant Estoppel Certificate?

 While the actual items required in a tenant estoppel will vary, here are some common points covered in a typical tenant estoppel letter or certificate:

. The commencement date of the lease.

. The date to which rent has been paid.

. That there are no defaults by either the landlord or the tenant.

. If there are defaults by either party, then a specification of these defaults will be required.

. Verification that the lease is unmodified and in full force and effect.

If the lease has been modified, then the estoppel certificate will include a statement verifying what modifications have been made.

Most leases will have a provision requiring a tenant to provide a tenant estoppel letter or certificate upon request, however, the details of what is to be included in the actual tenant estoppel certificate can vary. The above items are usually a good starting point.