Understanding Estoppel Certificates and SNDAs is more important than ever in the current economy: Advice from retail leasing attorney and long-time NRTA supporter Dan Myers
Received an estoppel request but don’t know why? Maybe you are wondering if you even have to respond.
The answer, according to Daniel B. Myers, Esq., a partner in the real estate and land use groups at Wendel Rosen LLP in Oakland, Calif., is unequivocally “YES!”
What is an Estoppel certificate anyway?
An estoppel certificate is intended to report factual matters regarding the status of a lease. According to Myers, a tenant often receives an estoppel request from the landlord when the landlord is refinancing or selling the property. These requests are often accompanied by an SNDA (Subordination, Non-Disturbance and Attornment Agreement) request, as well. “The first thing to do,” he advises, “is pull out your lease and see how long you have to respond.” Ten days? 15 days? 15 business days? “Whatever it says,” he says, “make sure you respond within that time frame.”
Myers offers a similar analysis regarding responding to an SNDA request—start by reviewing the lease. Does the lease have automatic subordination and non-disturbance language? While most leases will state that the lease is subordinate to future and current financing, when drafting lease provisions, Myers explains, tenants want to be sure that their subordination is “conditioned on the lender providing non-disturbance protection—in writing—to the tenant so, in the event of foreclosure, you are not kicked out.”
The signatures that bind
Paying attention to every detail when filling out estoppel and SNDA requests from your landlord or lender is crucial. “The most important thing to remember about estoppel certificates,” Myers says, “is that once you sign an estoppel, it is binding to you.” Take time to check, and double-check, every detail, no matter how small or insignificant it may seem. Such details include:
- Does it correctly list the amount of rent owed?
- Is the lease expiration date precisely accurate?
- Does it list all options?
- Does the landlord owe you money?
- Has the landlord completed all promised work on the property?
- Are there issues with the property?
When tenants and landlords disagree down the road, “The first thing the landlord, or the subsequent purchaser, is going to do is pull out the prior estoppel agreement” to see what the tenant stated. Myers suggests adding qualifying language such as, “to the tenant’s actual knowledge, as of the date hereof,” to these documents as a safety net, whenever possible. This is particularly applicable to larger companies. Also, tenants should state that the estoppel certificate does not amend or modify the lease.
Fallout from COVID-19
The reality of COVID-19 brings a new layer to the process of responding to estoppel and SNDA documents. In some circumstances tenants and landlords have signed an amendment regarding allowing reduced or deferred rental payments. However, there are likely many more situations where a tenant has fallen behind on their payments and the landlord has taken no action—situations, Myers says, where both tenants and landlords are “keeping it going until this gets resolved at some future point.” Whether you have a signed abatement agreement, an implied one, or the topic has never been discussed, tenants must address their current COVID reality in estoppel and SNDA requests.
Be very careful about what you say, cautions Myers, “because you never want to walk yourself right into a breach.”
More practical advice
If you are the one charged with responding to or negotiating an estoppel or SNDA request, you may feel overwhelmed. The topics are complex and confusing. Myers offers some additional concrete advice and reminders:
- Review lender boilerplate language carefully—sometimes lenders try to hide unreasonable language in these sections
- Limit language, stick to the facts
- If you can, use the process to build goodwill with your landlord by finding out landlord deadlines related to the financing or sale and responding accordingly
- Be meticulous. Be brief.
No one knows exactly what the post-pandemic economy will look like or what long term effects will be felt by commercial and retail tenants. At the corporate level, use this time as an opportunity to prepare your company’s processes regarding responding to future estoppel and SNDA requests.
They won’t be going away anytime soon.
Daniel B. Myers, Esq. has spoken on leasing issues at NRTA’s Annual Conference.
To view Myers’ full presentation, as well as access other NRTA webinars, visit the NRTA Professional Library.