The Underappreciated Estoppel

New York Real Estate Journal recently published an article authored by Olshan Real Estate partner Thomas Kearns entitled “The Underappreciated Estoppel.” The article discusses a recent Illinois case that highlights the benefits of obtaining an estoppel certificate from a counter-party. Mr. Kearns discusses the role estoppel certificates play, stating that they, “typically confirm the identity of the documents that make up the parties’ written agreement including any amendments and that the signatory to the estoppel has no offsets against or claims of default under such agreement. In commercial real estate, each mortgage lender often asks its borrower to obtain estoppels from the tenants in the building being mortgaged.” He notes that in the case of Uncle Tom’s Inc. v. Lynn Plaza, the court, “ruled in favor of the landlord and wrote that the disputed charge ‘was just the sort of defense or offset against the landlord’s enforcement of the lease that the lender was attempting to uncover by requiring the certificate.’” Mr. Kearns noted that this same result should occur under New York Law, as the, “2003 court decision in SRM Card Shop, Inc. v. 1740 Broadway Assocs., L.P., the tenant’s demand to enforce an oral modification of the lease was denied by the court due to an estoppel certificate previously signed by the tenant which did not mention the oral modification.” He also provides scenarios in which landlords should consider asking for estoppels more often. Mr. Kearns also brings about the point of other contractual arrangements, such as, “property purchase agreements, particularly those with long closing dates, or LLC agreements.” He provides an example for this type of situation, “[I]f a buyer requests a closing adjournment, the seller should consider asking for a certificate confirming that the buyer has no defenses or offsets to the contract and that the seller is not in default.” Mr. Kearns concludes, “Estoppel certificates can be useful by all sides in commercial real estate transactions and, absent fraud or other unusual circumstance, can be used by the receiving party as evidence that, as of a certain date, the party executing the estoppel has no offsets or defenses to its contractual obligations.”