Tenant Estoppel Letter for Commercial Real Estate Purchase

A Tenant Estoppel Certificate (or Tenant Estoppel Letter) confirms the existence and status of a commercial lease. This is a unique legal document which contractually binds the tenants of a building with the new purchaser (and often lender) and is produced during the due diligence period of a commercial real estate purchase.

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A Tenant Estoppel Letter can help negotiate a purchase price as it gives an additional valuation of a property by providing proof of current cash flow, lease status, options and rights held by the tenant.

The specific terms usually include the lease execution date, the commencement date of the lease, a monthly or yearly calculation of rent payments, the latest date to which rent has been paid, a statement that no defaults have occurred by either the tenant or landlord, and a verification that the lease has not been modified and is in full force. If a lease has been modified, these new specifications are outlined for a potential buyer’s review and verification.

Basically, it provides a second and enforceable description of the Lease terms as conveyed by the Purchaser’s attorney. You need to decide which terms are critical and need to be included in such an estoppel certificate as a longer form will produce more delays or pushback from tenant execution.

When a current lease is used as factor to calculate the value of a property, a Tenant Estoppel Letter ensures a potential buyer clearly understands and can verify a lease’s terms and ensure there is no confusion or surprises.

Is a Tenant Estoppel Letter legally enforceable or nonbinding?

Absolutely, it is binding against the party who executes it. For example, one common clause is that “there are no side letters or agreements between Landlord and Tenant other than the Lease.” If a Tenant later on tries to introduce a separate agreement, say for use of reserved parking space, then the Buyer can introduce the Estoppel letter as evidence that there is no right to utilize said parking spaces.

Reviewing a Tenant Estoppel Letter

I always start with a base template depending on the type or number of tenants. For multi-tenant commercial buildings, you need to predict how sophisticated and quickly the tenants can comply with this request. Review the commercial lease to see if there is a form mandated and if there is a deadline for the tenant to respond by. If there is not a form letter, you will need to select the most important provisions as applied to the purchase based on your goals. For less sophisticated tenants, try to make the letter as simple as possible to ensure a high rate of compliance. Many purchasers can close if they have 90% of the building covered, but some purchasers will insist (via PSA) to obtain 100% of the certificates.

While we encourage you to download the template to create your own Tenant Estoppel Letter, we also encourage you to contact an experienced commercial real estate attorney to ensure the document meets your specific needs.

Video Walkthrough of a Tenant Estoppel Letter

Download the Tenant Estoppel Letter Template

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Version Notes

v1.0

Initial release

Frequently Asked Questions about Tenant Estoppel Letters for Commercial Real Estate Purchases

What is a Tenant Estoppel Letter and why is it important?

A Tenant Estoppel Letter confirms the existence and status of a commercial lease. It’s used during due diligence to provide proof of “current cash flow, lease status, options and rights held by the tenant,” helping to validate a property’s income and valuation for a potential buyer.

What key terms are typically included in a Tenant Estoppel Letter?

It typically includes the lease execution date, lease commencement date, rent amount, last rent payment date, statements on defaults, and confirmation that the lease is “in full force.” Any modifications to the lease should also be specified.

Is a Tenant Estoppel Letter legally binding?

Yes, it is legally binding against the party who executes it. For example, if it states there are “no side letters,” the tenant cannot later claim special rights not included in the lease or estoppel letter.

How does a Tenant Estoppel Letter help in negotiating a purchase price?

It provides “proof of current cash flow” and lease details that affect valuation. This additional data point can “help negotiate a purchase price” based on confirmed rental income and tenant terms.

What should a buyer do if the lease does not specify a form or deadline for the estoppel?

If not mandated by the lease, the buyer must “select the most important provisions” and design a simple, effective estoppel letter, especially for unsophisticated tenants, to ensure timely and accurate responses.

How many estoppel letters are typically needed to proceed with closing?

Many purchasers proceed with 90% tenant coverage, but some will require “100% of the certificates,” depending on what is specified in the purchase and sale agreement (PSA).

Can tenants delay the deal by refusing to sign the estoppel letter?

Yes, especially if no form or response deadline is included in the lease. Delays occur more often with complex or overly detailed estoppel forms, so simplicity and clarity are critical for compliance.

Should I use a legal template or consult an attorney for this document?

You’re encouraged to use the downloadable template, but it’s also advised to “contact an experienced commercial real estate attorney to ensure the document meets your specific needs.”

About the A.CRE Legal Contibutor: Ronald Rohde has over ten years of legal experience with real estate transactions, leasing, and investment. He received his undergraduate degree from Cornell University and his juris doctor from the University of Miami.

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