By Jones Osborn II

If you're a tenant, you've undoubtedly been asked to sign those annoying little forms that say "Estoppel Certificate" at the top. And if you've ever purchased commercial property or lent money on commercial property, you've probably asked tenants to sign them.

In general, an estoppel certificate is a statement by the tenant that the lease is in force, that there are no defaults, that the rent has not been paid more than one month in advance, and so forth. The purpose, of course, is to provide verification to the purchaser or lender that the leases are as represented and that the cash flow upon which he is relying is likely to continue.

These certificates are based on the legal doctrine of estoppel, which holds that someone should not be allowed to take inconsistent positions to the detriment of another. The requirements for estoppel are: (1) the party to be estopped must know the true facts, (2) the party to be estopped must intend or have reason to know that his acts will be relied upon by another, (3) the party relying must be ignorant of the true facts, and (4) the party relying must have done so to his detriment.

Therefore, when a tenant signs an estoppel certificate knowing that a purchaser or lender is relying on the representations in the certificate, the idea is that the tenant will be estopped, or legally prevented, from later taking a contrary position. For example, if the tenant represents in the certificate that the lease expires on a certain date, and later tells the new owner that he has a side letter extending the lease, the new owner can take the position that the tenant is estopped from claiming that the extension letter is valid and refuse to recognize it.

This means that as a tenant, you should read carefully any estoppel certificate you sign and should be absolutely sure anything stated in the certificate is correct. If you are engaged in a dispute or disagreement with the landlord, or if you believe the landlord may be in default under the lease, be sure to disclose this in the estoppel certificate. And if you are not sure whether a particular representation is true, insert the words "to the best of tenant's actual knowledge" at the beginning of that statement.

What if you sign an estoppel certificate not knowing that a representation in the certificate is untrue? For example, suppose the landlord was in breach of the lease by overcharging for common area expenses, but you were not yet aware of that breach? If you had no reason to know the statement was untrue, you shouldn't be estopped from later taking a contrary position because one of the requirements of estoppel is that the party to be estopped must know, or at least have reason to know, the true facts. Nevertheless, great care should still be exercised in signing estoppel certificates because it is not always easy to prove what one did or did not know months or even years after the fact. A carelessly signed certificate can amount to a relinquishment of valuable rights.