Pay Attention to What You State in Estoppel Certificate

December 8, 2017
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If you’re required to sign an estoppel certificate as part of the process of renting space from the owner of an office building or shopping center, pay attention to what you’re agreeing to in that document. A recent New York case highlighted the fact that what a tenant pledges in an estoppel certificate can be held against them later.

There, tenants sued both the former and the current owner of the building in which they leased commercial space for failing to reimburse them for improvements they made to the premises, as required under their leases. The current owner challenged the complaint on the grounds that, as the current owner, it never assumed the obligation to pay tenant improvement costs that were incurred prior to the closing of its purchase of the building. Both the previous and current owner argued that the tenants signed tenant estoppel certificates in which they stated that the landlord was not in material default of the leases, and that the tenants were not entitled to any further tenant improvement allowances from either of the owners.

A New York trial court dismissed the claim against the current owner and ordered a trial for the claims against the previous owner. That was because the trial court noted that in the tenant estoppel certificates, the tenants certified to the current owner, with knowledge that it would rely on their statements, that all improvements the previous owner was required to make under the leases had been completed, and that the tenants had “no further rights to receive any allowances of Landlord contributions for tenant improvements pursuant to the terms and conditions of the Leases.” The tenants also confirmed in the third paragraph of the tenant estoppel certificates that the previous owner was not in material default in the performance of any lease agreement or condition.

The trial court explained that tenant estoppel certificates should be enforced unless the party “can show a defense to the making of the document, such as fraud or duress, or that the assignee accepted the certificate with knowledge of the contrary, and true, state of the facts.” Here, while the tenants asserted that they didn’t intend to represent in the tenant estoppel certificates that they were not owed funds from the previous owner for tenant improvements, they failed to allege fraud or duress in making the certificates. The tenants’ argument that the word “further” meant only future improvement allowances, and that they didn’t include the allowances they were still seeking to recover from the previous owner, “puts a strained reading on an unequivocal statement that no allowances were owed,” said the trial court. In addition, that unequivocal statement was supported by the tenants’ additional assurance that the previous owner was not in material default of any agreement or covenant in the leases.

While the tenants argued that the current owner knew of information that was contrary to what was set forth in the tenant estoppel certificates, it was the tenants’ obligation, as between them and the current owner, to ensure that they represented to the current owner the true state of facts, said the trial court. Accordingly, the trial court dismissed the claims against the current owner.

After examining the evidence the tenants provided to support their claims against the previous owner, the trial court determined that there were “issues of material fact” that necessitated a trial, so it severed the tenants’ claims against the previous owner, and ordered a trial [Aerotek, Inc. v. 757 3rd Ave. Assoc., LLC, October 2017].