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What are Estoppel Certificates?

When you are running a business in San Diego or anywhere in California, your business likely has many contracts and agreements. These include leases that you might have for retail or office space and might include vendor and supplier contracts. Likewise, any sort of financing you have with a lender is based on the financing contracts.

Occasionally, the status of any contract might need to be verified by some third party. Such third-party variations are often done through what are commonly called estoppel certificates. Here is some quick information on estoppel certificates

San Diego Businesses: What is an Estoppel Certificate?

Despite the officious name, an estoppel certificate is often just a single sheet of paper typed up by an experienced business lawyer which simply seeks verification of certain information regarding the status of an existing contract. As discussed below, estoppel certificates are used most often with real estate, but such are applicable and useful in many circumstances.

If you receive a request to complete an estoppel certificate, do not be overly concerned. But, at the same time, you should have a good business lawyer review the estoppel certificate. You are being asked to verify certain information. Often you are asked to not only sign the certificate, but also to have the certificate notarized. Thus, it IS an important legal document that could be binding on you. If the wording of the certificate is not correct, the wording should be modified.

Example of a Common Type of Estoppel Certificate: Landlord/Tenant

The most common use of estoppel certificates is with tenants and landlords. If the landlord is selling the property, the landlord will seek estoppel certificates from all the tenants asking the tenants to confirm a short list of facts including:

That the lease is still in effect
That the tenant is up-to-date on the rent
That the tenant has not pre-paid any rent
That the tenant has no claims for breach of the lease
That there are no monetary set-offs claimed against the landlord to be deducted from the rent

As can be seen, this is important information to know if you were buying the real estate. Knowing about pre-paid rent would be very important if you were expecting to receive those rents to help pay your new mortgage; likewise with claims or set-offs. As a new buyer, you do not want to discover after the sale that there is an angry tenant with 100 different claims for breach of the lease.

Most estoppel certificates/letters are short, asking for the basic information listed above. But sometimes more detail is requested such as start and end dates for the lease, details on rent and payments, details with respect to utilities, maintenance, repairs, etc. You definitely need competent legal advice if the estoppel certificate/letter is detailed and complicated.

Can I be Forced to Sign an Estoppel Certificate?

In general, you cannot be forced to sign an estoppel certificate absent some agreement on your part. With respect to real estate and commercial leases, most do require and command that tenants complete estoppel certificates. Under those circumstances, you do need to complete the certificate, but, again, the certificate must be changed so that it is accurate. You are not required to sign a certificate if said certificate is inaccurate.

With respect to other types of circumstances, such as a vendor estoppel letter, those are rarely required by contract and are not required by law. At the same time, if the request is coming from a trusted and valued business partner, completing such letters help continue established good will. Taking an example from the legal field, lawyers and law firms are often asked to confirm in accounting letters that “all fees have been paid” during the relevant accounting period. This is normal and not onerous and is generally a courtesy.

Contact San Diego Corporate Law

If you would like more information about estoppel certificates/letters, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for San Diego and California businesses. Mr. Leonard has been named a “Rising Star” three years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Mr. Leonard can be reached at (858) 483-9200 or via email.