Tenant Estoppels, Part 1 of 2: Practical Reminders on What Tenants Should Avoid

Although tenant estoppels can seem to be mostly nuisance documents, they can pose traps for the unwary, particularly if you are leasing space that is important to your company's operations or you have loan covenants regarding your occupancy of your space.

Negotiating Lease Provisions

Do not overpromise. Failure to comply with lease requirements for delivering estoppels are often an event of default under the lease. Consider the following circumstances.

• Timing: Two weeks is stunningly short to receive the request, send it to the right person internally and to your counsel to review, check the veracity of the statements to be made and return the estoppel – especially if the requests come when any of the key people on your team are out of pocket for vacation, illness or business obligations. The landlord (or the property's purchaser or lender) has an interest in getting the returned estoppel expeditiously, but your timing constraints are important too.
• Substance: Know that you are going to have to be able to stand by what you agree to state. Thus, you will have to fact-check any lease terms or circumstances to which the estoppel refers. Broad statements are simple to state but hard to check. Be specific and/or discrete as needed. For example, "There are no other agreements, written or oral, between the parties." Are you sure? Do your best to make certain there has been no course of dealing and no verbal agreements as to procedures that you are relying on but technically are not in the lease.
• Avoid making statements that you are not in a position to verify – third-party obligations or expectations, for instance (whether there are any defaults, noticed or otherwise, under the lease).

Where possible, make sure the estoppel requirements allow you to qualify any appropriates statements "to the best knowledge" of the tenant, including:

• making the limitation general to your company or to certain personnel/roles in your organization that would be in a position to know the stated facts and circumstances
• any estoppel statements that apply to third parties – if asked if there are defaults under the lease, you want to state that you do not know of any (if you do not) because you do not necessarily know if the landlord believes there is one that it has not yet notified you about
• qualifying your statements as to being made "without conducting an independent investigation"

Here are the things many landlords are going to care about the most (hint – they largely have to do with how secure the income stream to the landlord is under your lease):

• alleged landlord default
• unfinished landlord obligations, even if the landlord is not in default
• any existing conditions that would give rise to the tenant's right of set-off or reimbursement
• admitting your own default if it exists
• the current rental rate
• the security deposit (the landlord will likely owe on lease termination)
• any amounts prepaid under the lease that a new landlord would thus not be entitled to expect to receive from you later
• the time left on the lease, including any extension options
• what amendments, if any, are in effect
• any rights of first refusal on additional space in the building(s)
• in some cases, the commencement date, but usually this is pertinent to ascertain the current rental rate, termination date, etc.

Consider adding a template estoppel (or describing the kind of estoppel the landlord can require) containing only simple but discrete statements that comport with what you are willing to promise above.

Also consider adding a "special alert" notice requirement. You can add this for notices of default where the lease termination is a possible remedy because notices can get lost within larger corporations. Some clients set up a special email notice address or require that the notice contain prominent headings indicating that failure to respond within a certain time risks serious default consequences under the lease. Depending on lease terms, requests for tenant estoppels may also carry such important consequences and should get to the right party expeditiously.

What to Do When Asked to Execute a Tenant Estoppel

• Check the accuracy of the statements contained in the estoppel because you will be held accountable for them.
  • Other parties are relying on your statements and could sustain damages if you are mistaken.
  • You may waive a right to enforce a provision of the lease that you do not reveal (or reveal a default as to) in the estoppel.
  • Even if your form estoppel does not contain knowledge qualifiers, consider adding them where appropriate. Most recipients will accept these qualifiers for statements where they are appropriate, as they generally prefer to avoid receiving a late estoppel or spending excessive time negotiating non-critical aspects of the estoppel.
• Pay attention to timing deadlines and who needs to get copies of the estoppel request in a timely manner.
• Alert your landlord if there has been a problem with delivery of the request, or if you anticipate a problem returning the estoppel on time. Many times, landlords can prevent the worst consequences for themselves if they can alert third parties of anticipated delays that are nonetheless reasonable (as opposed to not knowing whether the estoppel is in fact expected to be delivered shortly).
• If you are not working from an agreed-upon form or format (or list of statements), check the "negotiation" provisions above so that you are not inadvertently over-promising in an effort to get the estoppel returned quickly.