Why do tenant estoppels delay closings?

The short answer

Tenant estoppels delay closings because tenants gain nothing from signing quickly, so each request waits in the tenant's queue. The certificates also surface side letters, rent disputes and unpaid landlord obligations that need resolving before funding. Lenders compound both problems when they send estoppels late in the closing.

Timing is the part a lender controls. Sending estoppels the week the commitment is signed, with the lease facts already filled in, gives the slowest signatures the whole closing to arrive.

What is a tenant estoppel certificate?

A tenant estoppel certificate is a signed statement from a tenant confirming the facts of its lease for the benefit of a lender or buyer. The tenant certifies the lease documents, the rent, the term and the status of each party's obligations.

The certificate draws its force from the legal doctrine of estoppel, which can bar a party from later asserting facts that contradict its earlier statements when another party relied on them. A tenant that certified no defaults and no prepaid rent faces that bar if it later claims otherwise against the lender.

Lenders keep the signed certificates. The OCC's Commercial Real Estate Lending handbook lists copies of all leases and executed tenant estoppels among the documents banks typically maintain in the loan file.

What does an estoppel certificate confirm?

• The lease documents

  The lease and every amendment, listed by date, as the complete agreement.
• Term and dates

  Commencement, rent commencement and expiration dates.
• Rent

  Current base rent, scheduled increases and additional rent for expenses.
• Deposits and prepaid rent

  The security deposit held, and any rent paid more than a month in advance.
• Defaults and claims

  Whether either party is in default, and any offsets, credits or claims against the landlord.
• Landlord obligations

  Whether tenant improvements are complete and allowances are paid.
• Rights and options

  Renewal, expansion, termination, purchase and first refusal rights.
• Occupancy and transfers

  Whether the tenant occupies the space, and any assignment or sublease.

Which tenants need an estoppel?

The commitment letter usually sets the requirement. Lenders generally want estoppels from major tenants, defined by square footage or share of rental income, and from any tenant whose lease changes the credit.

Several kinds of tenancy call for an estoppel regardless of size. Anchor tenants in retail centers affect co-tenancy rights for everyone else. Tenants with purchase options or rights of first refusal can affect the lender's collateral. Tenants with unpaid improvement allowances or rent abatement periods change near-term cash flow. A ground lessor's estoppel is essential on a leasehold loan.

Settle the list early and put every named tenant on the checklist as its own item. A threshold agreed after requests go out invites argument over which missing certificates matter.

Why are tenants slow to sign?

An estoppel reaches a tenant as a legal document from its landlord, asking it to certify facts in writing for a lender it has no relationship with. Signing carries risk for the tenant and no benefit, so it waits behind the tenant's own business.

National tenants route estoppels to legal or real estate departments with their own queues, and many prefer their own form. Small tenants often set the document aside because it looks like it needs a lawyer. Both responses are ordinary, and follow-up works better when it treats them that way.

Leases help the landlord here. Many commercial leases require the tenant to deliver an estoppel within a set period after the landlord's request, and some deem the landlord's statement accurate when the tenant fails to respond. Quote the clause in the request.

What problems do estoppels turn up?

An estoppel asks the tenant to confirm the landlord's version in writing. Sometimes the tenant answers with a different version, and finding that before funding is the point of the exercise.

How do you get estoppels back faster?

• 1
  Send them at commitment

  Estoppels carry the longest outside dependency of any routine closing item. Send them the week the commitment is signed.
• 2
  Prefill the facts

  Fill in dates, rent, deposit and lease documents from the abstract, so the tenant checks facts against its own records.
• 3
  Use the right form

  Check the lease for a required form, and agree in advance whether the lender accepts a national tenant's standard form.
• 4
  Cite the lease deadline

  Quote the estoppel clause and name the response date it creates.
• 5
  Use the landlord's relationships

  The property manager knows who at each tenant can sign and how to reach them.
• 6
  Track every tenant separately

  Give each estoppel its own line with a contact, a due date and a status, so follow-up targets the right tenant.

What should an estoppel request package include?

• A cover letter

  Explains the financing in one paragraph, quotes the lease's estoppel clause and names the response date.
• The prefilled certificate

  Lease facts already entered, with space for the tenant to note corrections.
• The SNDA, if required

  Sent in the same package, so the tenant's counsel reviews both at once.
• Signing instructions

  Who may sign, whether electronic signature is accepted and where to return the document.
• A named contact

  One person who can answer the tenant's questions about the request and the lease facts.

What if a tenant never signs?

Some estoppels never arrive, and the closing proceeds anyway. Settle the fallback in the commitment, before tenants start responding.

A threshold is the cleanest option. Commitments commonly require estoppels from tenants above a stated square footage or share of rental income and accept the absence of the rest. The rule is set on principle in advance, so nobody argues it deal by deal in the final week.

A landlord estoppel is the next option. The borrower certifies the lease facts itself, often with recourse attached to the certification. The evidence is weaker, since it comes from the source the estoppel was meant to test, and the borrower's liability stands behind it.

A post-closing delivery covenant is the weakest option. After funding, the lender has less pull, and a tenant that ignored the request during the closing has even less reason to sign later.

How does an SNDA differ from an estoppel?

An estoppel confirms facts. An SNDA, a subordination, non-disturbance and attornment agreement, sets relationships. The tenant subordinates its lease to the mortgage, the lender agrees to leave the tenant in possession after a foreclosure as long as the tenant performs, and the tenant agrees to recognize the new owner as landlord.

Lenders often request both from the same tenants at the same time. Tenant counsel tends to negotiate SNDA terms harder, since the agreement changes the tenant's rights in a foreclosure, so SNDAs can take longer than the estoppels they travel with.

How should estoppel status be tracked?

Track each tenant as its own item with the tenant contact, the date sent, the lease deadline, the status and notes from every follow-up. Make the list visible to the leasing team, the closer and counsel, so follow-up stops duplicating and nobody depends on one person's memory of who called whom.

In Prodeal, each estoppel is a checklist line with a due date and a status. The borrower's team uploads the signed certificate against its line, and notes record any discrepancy found in review.