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Commerical Lease: Estoppel Agreements

by on August 22, 2011

Estoppel agreements are used by prospective purchasers of commercial real estate to get information about the status of an underlying lease.  The certificate typically requests information such as rental amount, lease duration, amendments to written lease agreements, and existing breaches of the lease.  Not only are estoppel certificates used by potential buyers, estoppel certificates are usually required by the lender as a condition of financing.  Here, in Georgia, commercial landlords and tenants need to be aware that the courts strictly enforce representations made in estoppel certificates.

In Office Depot v. The District at Howell Mill, LLC, et al., No. A11A0383 (May 6, 2011), Office Depot started leasing space in a shopping center in 2005.  In the lease, the landlord agreed not to rent space to a similar business.  In 2006, the landlord arguably leased to space to a similar tenant.  In April 2007, during due diligence by a third-party contemplating purchase the property, Office Depot signed an estoppel certificate.  In the estoppel certificate, Office Depot affirmed that the “[l]andlord is not in default in the performance or observance of any of its obligations under any terms or provisions of the Lease.”  In 2009, Office Depot sued the new landlord. The trial court awarded summary judgment to the new landlord, finding that the estoppel certificate barred Office Depot’s claims for breach of contract.

The Georgia Court of Appeals agreed, explaining as follows:  “Georgia law recognizes ‘on grounds of public policy and good faith, the potential estoppel effect that can result from a tenant’s execution of [an estoppel] certificate.’ (Citation and punctuation omitted.)  Virginia Highland Associates v. Allen, 174 Ga. App. 706, 709 (1985).  As we have explained, “[a]dmissions which have been acted on by others [] are conclusive against the party making them, in all cases, between him and the person whose conduct he has thus influenced.’” (Emphasis omitted.)  Id. at 708.

Other factors the Georgia Court of Appeals considered were that the new landlord relied upon the estoppel certificate in making its decision to purchase the property and the new landlord was unaware of any potential breach of lease by the former landlord.

Thus, when a tenant signs an estoppel certificate, it’s waiving all future claims against the new landlord.  Likewise, the new landlord can safely rely on an estoppel certificate, and even use it as a defense to claims raised by the tenant regarding issues arising prior to the date of the estoppel certificate.

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