This article originally appeared in Colorado Inno. See it here.
Denver has been an active market for building sales which means that estoppel certificates are getting distributed to companies all over the city. Tenants should be aware and well informed on how to address an estoppel certificate from a landlord, because they can present liability risks.
What is an estoppel certificate?
An estoppel certificate is a signed statement by a party to a commercial lease certifying as true particular facts related to the lease. They are usually required of a tenant when the property is being sold or the lease is assigned to another party.
Typical information that is included in an estoppel are major facts of the lease, 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 regarding renewals, terminations and extensions and when they must be exercised, any subleases and their terms, and so on.
Estoppels are time sensitive!
Most estoppel certificates have a short deadline for review and signature, typically within ten days of delivery, so send it to your real estate broker or attorney as soon as possible.
Your lease might say that if you don’t complete the requested estoppel certificate and return it by a certain deadline, your landlord may sign it for you. It might say that your failure to timely return the estoppel certificate is deemed to be an admission that everything set out in the requested certificate is true. It even might say that if you fail to deliver your estoppel certificate in a timely manner, you will pay significant monetary fines and/or be liable for all damages incurred by the landlord as a result of your failure to timely return the certificate.
Why do landlords ask for them?
Subsequent purchasers or lenders demand estoppel certificates from landlord’s before purchasing or financing a building. It helps them understand the economics of the lease and to determine the potential exposures they face if they become the owner of the property.
Advice from your local real estate broker
My advice is to send the estoppel certificate to both your attorney and your broker, especially your broker. Unfortunately, language is sometimes added to the certificate that cannot be determined through a review of the lease. But a broker will know what is customarily seen in an estoppel certificate and match that language to your lease to ensure you are not verifying any information not previously agreed to.