Although tenant estoppels are less important than other key terms of most leases, they can be of great importance when landlords seek a sale or refinance of a property. Thus, landlords want to balance strong provisions allowing them to require timely tenant estoppels from their tenants, while minimizing unnecessary lease negotiation time and tenant failures to comply.
Negotiating Lease Provisions (Common Missteps)
Requiring too much in the lease form may motivate the tenant to negotiate that provision more heavily. Furthermore, if you are successful in obtaining strict requirements, tenants may be unwilling or unable to comply when the actual tenant estoppel is needed. You may be able to declare default for a failure to comply with the tenant estoppel provisions, but if you are in the context of a sale or refinance, do you want to declare a tenant in default? Some landlords require more than they might need in the following areas, sometimes complicating transactions in ways that are not needed:
- Asking for unreasonable response times. This is where tenants push back most frequently. As discussed in Part 1 of this series, "Tenant Estoppels: Practical Reminders on What Tenants Should Avoid," two weeks may feel like a long time for a landlord wanting to please a potential new lender or a potential purchaser, but it can be difficult for most tenants to get the required "homework" done to check tenant estoppel affirmations in a short time period, especially if that period happens to fall during typical vacations or holidays (which will not be in the tenant's control).
- Asking for more details than is necessary. Once the tenant is concerned about timing, they have reason to discuss the tenant estoppel provision more fully. If your current lender has a preferred form, that is helpful to know, but it is also important to consider the life of the lease versus the life of the loan.
- Avoid requiring statements of the tenant that are too difficult
to check:
- Broad statements are simple to state but hard to check. Be specific and/or discrete. For example: "There are no other agreements, written or oral, between the parties." Typically, courses of dealing help tenants versus landlords, so do not give them incentives to try to call those out.
- Avoid requiring affirmative statements that the tenant is not in a position to verify – for instance, third-party obligations or expectations.
- Here are the things many landlord clients care most about and
should be affirmatively addressed in any useful tenant estoppel
(hint – they largely have to do with how secure the income
stream is under your lease, and most of these will not be a
surprise to most landlords):
- any alleged landlord default
- unfinished landlord obligations, even if the landlord is not in default
- any existing conditions that would give rise to the tenant's right of set-off or reimbursement
- admitting the tenant's default if it exists
- the current rental rate
- the security deposit
- any amounts prepaid under the lease that a new landlord would thus not be entitled to expect to receive from the tenant later
- the time left on the lease, including any extension options
- what amendments, if any, are in effect
- any rights of first refusal on additional space in the building(s)
- in some cases, the commencement date, but usually this is pertinent to ascertain the current rental rate, termination date, etc.
How to Ask Your Tenant for an Executed Tenant Estoppel
- Alert the tenant to timing deadlines so the tenant is aware of their obligations and your reliance on compliance with the lease provisions, especially if the tenant is important and you are not seeking to declare them in default.
- If the tenant and/or its tenant estoppel is important, consider asking them to alert you immediately if they have concerns about meeting response obligations. Your pending refinance or sale may go smoother if you are in communication with important tenants and can share that information with the lender/purchaser.
- If you receive a tenant estoppel alerting the recipient to lease conditions that you do not agree with, considering sending a notice to the tenant stating that you do not agree with their statements. While failure to respond may not imply agreement in most circumstances, you may want a well-documented file if the tenant is or becomes troublesome.
- To that end, if you have a troublesome tenant and your lease
does not limit the circumstances under which you can request a
tenant estoppel (but allows you to request one), consider sending a
request as to issues you would like to see addressed in writing,
especially affirmative obligations of the tenant that are harder
for you to check, including:
- insurance obligations
- repairs
- heating, ventilation and air conditioning (HVAC) maintenance
Many leases simply allow a landlord to evict the tenant under any event of default in tenant obligations, so letting a troublesome tenant know that you mean business can provide more leverage in cases where a tenant has been able to cure some defaults, but you suspect other (absolute) obligations are not being met and you are ready to move on to a new tenant.
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.
