Most commercial tenants don’t know very much about estoppel certificates. They may have had their building owner ask them to sign one, if the building owner is thinking about selling or refinancing the property.
Basically, the landlord collects estoppel certificates from their tenants to officially document current and future terms of all leases in play. This gives a would-be buyer or lender a high-level view of what the building is truly worth.
But signing one can actually help you, the tenant, too. Here’s how.
Make Sure Promises are Kept
Let’s say that your building owner has promised to update the signage in the front of the building in the second year of your lease. You very much want this to happen, knowing that better signage means more foot traffic and more money for you. Putting this in an estoppel certificate in a commercial lease is the key to making sure this happens.
You need documentation to prove that this was agreed on and your next would-be landlord needs to be aware of it. An email string and a handshake agreement may not be good enough. If the building changes hands, you need documentation to make sure things like this don’t fall through the cracks.
Putting this in your estoppel certificate ensures that the new building owners are truly aware of what they’re getting into.
Also, if your current landlord is hesitant to put something in (or sign off on something in) your estoppel, this is a giant red flag that they’re trying to hide something about the promises they’ve made.
It Ensures a Better Working Relationship
This also ensures you start off the relationship with your next landlord on good terms. They’re not blindsided by you telling them that they owe you $5,000 worth of signage. It also prevents you from being immediately on the defensive as you hear them say, “This is the first I’m hearing about this.” This can start things off on a contentious foot.
Even if you’re able to convince them to pay for half of the signage, the lack of an estoppel just cost you $2,500.
It Helps Everyone Involved
The estoppel is there to ensure full transparency for everyone involved in the event that the building is sold or refinanced.
The building owner can sell for a better price or finance for a better rate if they have signed estoppels from everyone in the building. They’re showing that they’ve been a diligent landlord and this will be a surprise-free transaction.
At the same time, it also gives the buyer or lender a more accurate idea of what the building or property is really worth. They can see that Lot A and Lot B are paying $5,000 a month in rent. However, they were both promised $5,000 in new signage, which creates $10,000 worth of new expenses that a buyer should know they are now on the hook for.
Take your estoppel certificate seriously and be as thorough as possible. Bring it to a commercial lease expert and let them know about anything that isn’t currently included, but needs to be.
This ensures that if the building changes hands all existing promises will be met and you’re not hung out to dry.