Tenant Estoppels in 2024: What Southern California Tenants Need to Know 

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The Sale or Refinance Process and You

When a commercial office building changes hands, tenants can be caught in the middle with a document called a “Tenant Estoppel Agreement.” Landlords often present these for signature with a tight deadline, but tenants shouldn’t feel pressured to sign without careful review. 

What is a Tenant Estoppel Certificate?

Think of it as a sworn statement from you, the tenant, verifying the details and current status of your lease. In legal terms, an estoppel certificate is “a signed statement… certifying for another’s benefit that certain facts are correct…” This essentially means you’re confirming the lease exists, there are no outstanding issues, and you’re paying rent as agreed. 

Why is it Important?

For property acquisitions and commercial real estate loan approvals, Tenant Estoppel Agreements are crucial during the due diligence phase. Landlords consider them essential – a sale can’t proceed without them. Tenants should take them seriously as well, as they can impact your rights.

What Does a Tenant Estoppel Agreement Typically Include?

Lease start and end dates
Lease payments made and outstanding amounts
Contact information for both parties
Details on lease renewals and extensions
Rights and responsibilities outlined in the lease agreement

Why Tenants Should Be Aware

The Estoppel Agreement acts as the “source of truth” if there’s a discrepancy between it and your original lease. The most recent document, typically the Estoppel Agreement, often takes precedence. That’s why it’s surprising that sometimes these agreements are prepared by less experienced individuals, potentially overlooking key tenant rights negotiated in the original lease. These rights could include things like:

Right of first refusal when renewing the lease
Options to extend the lease term
Agreements about how a sale of the property might impact taxes for the tenant

Protecting Yourself: Reviewing the Estoppel Agreement Carefully

It’s critical for tenants to meticulously review any presented Estoppel Agreement. Ensure it accurately reflects the protections outlined in your original lease. Professional representation can be invaluable in this process.

Key Legal Considerations

Here are some relevant legal points to consider (based on California case law):

Estoppel Certificate Content Can Be Binding: Courts may presume the information in an Estoppel Certificate is accurate and binding on both parties, even if there are mistakes (Plaza Freeway Ltd. P’ship v. First Mountain Bank, 2000).
Resolving Discrepancies: If there’s a conflict between the Estoppel Certificate and the Lease Agreement, courts will try to interpret them together to resolve the issue (Miner v. Tustin Ave. Inv’rs, LLC, 2004).
The Importance of Accuracy: Courts have emphasized the importance of accurate Estoppel Certificates, as they are widely used in real estate transactions (Plaza Freeway, supra).

Real Client Estoppel Case

Mazirow Commercial had negotiated a no tax increase for our client due to the sale of an office building. The client received an Estoppel and signed it without having us review the document.

The Estoppel failed to state that there was protection for the tenant in the event of a sale of the asset and there would be no resulting tax increase due to the sale. This omission cost the client $15,000 each year for the last two years of the lease as the Estoppel was the document that took precedence over the lease. If the client had simply had us review the document, they could have saved $30,000!

Don’t Go It Alone: Seek Professional Help

Navigating Southern California commercial leases and understanding their implications requires expertise. Just as landlords have a full understanding of the market, tenants should too. Mazirow Commercial provides professional representation to ensure your rights are protected throughout the leasing process, including Estoppel Agreements. Call us today at (805) 449-1945 for an initial consultation.

Mazirow Commercial advises on commercial leases and real estate in Los Angeles and Southern California including Encino, Woodland Hills, and Sherman Oaks.