What is an estoppel agreement and why do you need this clause in a commercial lease?

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In the event the building you lease is sold; the buyer wants to be assured the rents the building owner claimed are correct.? The buyer typically requires the right to get a written confirmation from each tenant confirming the rental rate and term. The tenants lease specifies how many days they have to return an estoppel certificate in the event of an offer on the building. The timing is critical because the buyer has only so many days to move forward with the purchase.

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The value of a commercial building can be based upon being vacant or it can be sold based upon the value of cash flow the building produces.? The more rent the building makes, the higher its valuation.

A client came to me to find them a new building to lease for their business.? The agent who helped them initially to find and negotiate a space to lease was new to the business. It was my client’s first time leasing an office space. The listing agents did their job which is to extract as much rent as possible for the building owner.

?The lease terms were horrible. The tenants paid 6 months of rent up front plus a large security deposit. Per the lease, the landlord was supposed to ?return the security deposit to the tenants after paying two years of rent on time. When tenants lease office space from good landlords, the landlord provides a good allowance towards a build out.? This landlord agreed to make a few changes to the suite. Unfortunately, the improvements were significantly below what a landlord would do for tenants in that particular market.

?The landlord and the tenant’s attorney negotiated a fair lease for both parties.? However, when the tenants went to sign the lease, it was not the one they had negotiated. The listing agent told them to take it or leave it.? The tenant had made commitments to their clients and needed to be opened up by a specific date.? There was no time to find and negotiate another space.

?Many issues occurred with the space after they took occupancy. When you are dealing with an unethical landlord expect to have similar issues. For instance, some rooms were too hot, and some were too cold.? Turns out whoever added offices to the space previously didn’t hook up the heating and cooling systems to the rooms. It was just one thing after another, yet the tenants paid their rent.

?Two years after moving into the space, the building went up for sale. Shortly thereafter a buyer was found who started their due diligence. When the estoppal certificate arrived, the tenants sent it to their attorney to respond. The security deposit nor the construction was ever completed by the landlord. Their attorney contacted the title company with an executed copy of the lease. The property could not be sold without the security deposit being refunded to the tenant at the closing.? Additionally, the landlord had to finish the construction as outlined in the lease.

?I’ve worked in this industry for a long time.? This is perhaps one of the most egregious situations I’ve ever encountered. Typically, this behavior happens if a landlord is financial trouble, or they are just mean spirited.? Never learned who the landlord was, the bad ones typically hide behind a legal curtain so they can’t be identified.

?If you are a tenant or buying a new building, remember the estoppel certificate might seem unimportant to you until you realize it could also help you in the long run.?

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