What Does Estoppel Mean in Real Estate

What Is An Estoppel

An estoppel is a document that requires one party to a lease to provide the other party with a signed document that certifies specific facts to the requesting party. Once provided, the party that certified the information is “estopped” from later saying something different or challenging the facts stated in the estoppel document. Estoppel clauses are not some of the flashiest clauses in any lease, but they are important ones that should not be ignored.

When Are Estoppels Used

A lender typically requests estoppels in conjunction with the landlord financing or refinancing the property. Purchasers and their lenders also request estoppels in conjunction with the purchase of a property to verify, among other things, the accuracy of warranties and representations being made by the seller regarding the terms contained in the leases and whether there have been any changes or verbal agreements made between the selling landlord and the tenant. They also confirm the status of rent payments and security deposits to verify the accuracy of the rent roll provided by a seller and whether any default claims are being made by a tenant.

The party providing the estoppel should review it in detail and be careful to provide accurate and up-to-date information in any requested estoppel, as the document will generally bind them. Most estoppel forms provide that the receiving party will be relying on the accuracy of the information provided, and the providing party is bound by its response.
While most estoppel clauses start one-sided and are generally written for the landlord’s benefit, there should be little pushback from the landlord when the tenant requests that the clause be made mutual. Like landlords, tenants also need estoppels in conjunction with the sale of their business or a particular location and in the event of financing their business. Many national and credit tenants have their own form documents and negotiate the inclusion of that document in the lease in the context of the initial lease negotiation.

Key Takeaways

Finally, a few essential items should be discussed and negotiated in these clauses. The first is whether there will be a cost associated with providing the estoppel (and if so, how much), the frequency that they may be requested (not more than once every lease year?), and the timing within which the receiving party must respond (10 days, 20 days, 30 days).
The key takeaway regarding estoppels is that these are not flashy clauses that receive much attention. Rather, they contain essential terms that should be carefully reviewed and negotiated in conjunction with the initial lease execution.