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Estoppels

What You Should Know about Estoppels

Hey El Cardinale,

I’m on my third landlord in five years. Yet again, I have an estoppel that the landlord has presented to me. This one is much longer than the others in the past. Is there something that I need to be thinking about?

– Paul Paperhater


 

Paul,

You have a business to run, and now you have your landlord asking favors (yet again). It does not take being a lawyer to know there are risks in signing the estoppel, so be careful.

First, let me address why your building is a hot-potato. There’s so much money chasing commercial real estate these days that buildings are trading at a fast clip. When the owner refinances a building, new estoppels are common. It used to be that new buildings might be sold every seven to twelve years. Owners are now holding buildings for far shorter time periods. Owners are receiving attractive offers without listing their buildings with brokers. These types of “off-market” transactions are occurring more frequently, resulting in a lot of change for the tenants.

What you should know about estoppels:

  • Make certain that the estoppel references ALL of the: (i) lease terms, and (ii) documents associated with the lease (attachments, amendments, suite acceptance letters, side-letters, etc.).
  • When negotiating a new lease:
    • Limit the number of times that the tenant must sign an estoppel. The first one should be free, and the next one should be about twice the cost that you are going to pay an attorney to review the document.
    • Strike any language that deems the estoppel as being accurate if not returned by a deadline.
    • Have the document signed by all parties.
  • Has the landlord been in default? It’s tempting to hold up the estoppel or pencil in the landlord’s default. I advise you to think twice, and perhaps give me a call, before doing this.

 

You know that there are risks in signing an estoppel. I suggest that you have your attorney review it. Cardinal has experience with attorneys across the country who are top commercial real estate, legal professionals. If we can help you find one, give us a call at 704-953-5500 or email me at john@cardinal.re.

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