Due to a lender's reliance upon the income streams
associated with real property to be used as security in a
commercial mortgage financing transaction, the leases that exist
upon a borrower's property are the most important assets of
that borrower next to the value of the land to be mortgaged. As
those leases are a key element of the security taken by a lender in
connection with a financing, a lender would do well to carefully
assess their value in evaluating the risk associated with the
An Estoppel Certificate, also known as a Tenant's
Acknowledgement or Status Statement, serves as independent
verification to a lender of the terms and status of a particular
lease of land from the tenant's perspective, enhancing a
borrower's disclosure to a lender. Although they are not immune
from challenges, these documents can serve to prevent a tenant from
making claims in the future which are inconsistent with the
certificate regarding matters that existed prior to the date of the
The strength of a borrower's leases will factor into the
decision to provide financing and an Estoppel Certificate can
assist in assessing a lease's value by providing a lender with
a current snapshot of a lease, confirming its terms, parties and
any outstanding current obligations. They bolster the disclosure of
the borrower by revealing whether a landlord borrower is liable for
items such as completing "Landlord's Work" and making
payments to the tenant in the form of a tenant improvement
allowance. This information can be used by a lender as a baseline
in assessing risk and provide a window into the operational
realities of the landlord/tenant relationship that are not
discoverable by a review of the lease documentation and rent roll
alone. This allows a lender to have a clearer picture of the
revenue streams it can expect to receive in the event it must
enforce its security.
Estoppel Certificates also give information to a lender
regarding whether there have been defaults by the landlord or the
tenant, whether options to extend the term or expand the premises
have been exercised, and give an indication of the level of
cooperation between the parties. They also allow a tenant to
provide its perspective regarding the landlord's ability and
willingness to satisfy its obligations.
Subject to the limitations contained in a particular lease, an
Estoppel Certificate should typically contain the following
Certification that the lease is valid, unmodified, in full
force and effect and is presently in good standing
A statement as to whether the tenant has accepted and taken
possession of the premises
Confirmation of the commencement date, the expiry of the term
and any renewal rights the tenant may have
A statement as to whether the tenant has sublet all or any
portion of the premises
An acknowledgement as to the basic rent for the term, whether
there are any prepaid rent or security deposits and the date to
which the rent has been paid
Confirmation as to whether there are defaults under the lease
by the landlord or the tenant that remain outstanding or
A statement that any improvements that the landlord is
responsible for have been satisfactorily completed or, in the
alternative, a list of outstanding items
A declaration as to whether the tenant has any expansion,
contraction, renewal, termination or purchase options and whether
such options have been exercised
A statement that there is no existing dispute, claim, set-off,
defence or counterclaim by or against the landlord; and
A statement that there are no allowances, incentives,
inducements, or benefits or money owing or which may become due to
the tenant under the lease
Overall, having a number of comprehensive Estoppel Certificates
prior to closing will provide a lender with a level of enhanced
disclosure of the details of its borrower's income stream and
lease obligations to supplement and support its mortgage security
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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