An Estoppel Letter or Certificate is a document that a landlord or lender may send to a tenant for their signature from time to time during their tenancy.
Its purpose is to verify that the following statements made in the lease are in fact true, and confirmed by the tenant. This is usually required in two instances: the landlord is placing new debt, or refinancing existing debt on the building, or the building is for sale. In either scenario, the lender or purchaser wants the tenant to waive any contrary claims to what's stated in the lease by "estopping" or prohibiting them from doing so by way of this document. This is also part of the due diligence process in verifying that the cash flows and lease terms stated by the seller or borrower are accurate.
The estoppel typically covers the following areas:
- The square footage of the leased premises
- The lease is in full force and effect
- The lease commencement and expiration dates
- Any options to extend, termination rights, purchase rights or rights of first refusal
- The monthly rent and any escalations
- The amount of the security deposit
- Tenant and landlord are not in default
- The lease has not been assigned or subleased
- Tenant has no claims against landlord
Once the tenant receives such a notice, there's typically a pretty short timeline for returning the document to the landlord or lender. Failure to complete the document usually results in the tenant waiving their right to contest the terms of the estoppel, however in other leases this act could constitute a breach, and the landlord's remedy could be as punitive as a percentage increase in rent. Either way, you want to respond quickly to this document and first have it reviewed by your real estate advisor prior to signing. If the estoppel is simply because of a refinance there's no cause for concern, however if your building is for sale, the reassessed value could result in a substantial increase in property taxes, which the tenant will be responsible for paying.
More on that here: Why the sale of a building can be expensive for the tenants