Article on Tenant Estoppel
TENANT ESTOPPEL CERTIFICATE
Definition “[a] signed statement by a party (such as a tenant or mortgagee) certifying for another’s benefit that certain facts are correct, as that a lease exists, that there are no defaults, and that rent is paid to a certain date. A party’s delivery of this statement estops that party from later claiming a different state of facts.’’ Black’s Law Dictionary, 572 (7th Ed., 1999). Purpose To set forth specific facts pertaining to the lease agreement for a third party to rely on. The third party is typically a lender. The certificate does two things: (1) Gives a prospective purchaser or lender information about the lease and the leased premises; and (2) Gives assurances to the purchaser or lender that the lessee, at a later date. Will not make claims inconsistent with the statements contained therein. Alvin L. Arnold & Jeanne O’Neill, Real Estate Leasing Practice Manual, § 35:1 (West Online 2005). The statement allows a lender to assert equitable estoppel against a tenant who disputes a lease provision. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT Purpose The SNDA establishes priority of competing liens against real estate (leases are viewed as liens here). A lease that is entered into after a mortgage has been executed and recorded is deemed automatically subordinate to the mortgage, because the tenant, as a result of the recording acts, has constructive notice of the mortgage. Here, the SNDA is used to subordinate your interest behind the lenders because most lenders require their mortgage lien be superior to all others. This puts the tenant at risk of being out of a lease if the landlord forecloses. But, the following non-disturbance clause remedies this situation for the tenant. The lender wants to ensure that any favorable leases will stay with the property, but also wants to maintain the freedom to terminate other problem leases in case of foreclosure of the property. At the same time, the tenant wants to ensure that its lease remains intact throughout the entire term and that the landlord’s obligations will be performed, even if a new landlord comes in. The tenant acknowledges that the lease is subordinate (junior) to the landlord’s mortgage, and as long as the tenant is not in default under its lease, the tenant will not be disturbed if the landlord defaults under the mortgage. The SNDA protects the tenant from being named as a defendant if the landlord forecloses. Subordination This is the section where the tenant acknowledges that the lease he holds is subordinate to a mortgage or loan (security instrument) between a lender and the landlord. Non-Disturbance In the case that the landlord does default on an obligation to a lender and property is foreclosed upon, the tenant shall retain the same standing as they had before the foreclosure. This allows the tenant to continue occupancy in the premises after foreclosure. Attornment This section assures the lender that the tenant will attorn to the lender or a purchaser following a foreclosure. This means the tenant agrees that the lease continues after foreclosure and that the tenant will recognize the lender as landlord. Published for clients as a source of information. The material contained herein is not to be construed as legal advice or opinion.
Definition “[a] signed statement by a party (such as a tenant or mortgagee) certifying for another’s benefit that certain facts are correct, as that a lease exists, that there are no defaults, and that rent is paid to a certain date. A party’s delivery of this statement estops that party from later claiming a different state of facts.’’ Black’s Law Dictionary, 572 (7th Ed., 1999). Purpose To set forth specific facts pertaining to the lease agreement for a third party to rely on. The third party is typically a lender. The certificate does two things: (1) Gives a prospective purchaser or lender information about the lease and the leased premises; and (2) Gives assurances to the purchaser or lender that the lessee, at a later date. Will not make claims inconsistent with the statements contained therein. Alvin L. Arnold & Jeanne O’Neill, Real Estate Leasing Practice Manual, § 35:1 (West Online 2005). The statement allows a lender to assert equitable estoppel against a tenant who disputes a lease provision. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT Purpose The SNDA establishes priority of competing liens against real estate (leases are viewed as liens here). A lease that is entered into after a mortgage has been executed and recorded is deemed automatically subordinate to the mortgage, because the tenant, as a result of the recording acts, has constructive notice of the mortgage. Here, the SNDA is used to subordinate your interest behind the lenders because most lenders require their mortgage lien be superior to all others. This puts the tenant at risk of being out of a lease if the landlord forecloses. But, the following non-disturbance clause remedies this situation for the tenant. The lender wants to ensure that any favorable leases will stay with the property, but also wants to maintain the freedom to terminate other problem leases in case of foreclosure of the property. At the same time, the tenant wants to ensure that its lease remains intact throughout the entire term and that the landlord’s obligations will be performed, even if a new landlord comes in. The tenant acknowledges that the lease is subordinate (junior) to the landlord’s mortgage, and as long as the tenant is not in default under its lease, the tenant will not be disturbed if the landlord defaults under the mortgage. The SNDA protects the tenant from being named as a defendant if the landlord forecloses. Subordination This is the section where the tenant acknowledges that the lease he holds is subordinate to a mortgage or loan (security instrument) between a lender and the landlord. Non-Disturbance In the case that the landlord does default on an obligation to a lender and property is foreclosed upon, the tenant shall retain the same standing as they had before the foreclosure. This allows the tenant to continue occupancy in the premises after foreclosure. Attornment This section assures the lender that the tenant will attorn to the lender or a purchaser following a foreclosure. This means the tenant agrees that the lease continues after foreclosure and that the tenant will recognize the lender as landlord. Published for clients as a source of information. The material contained herein is not to be construed as legal advice or opinion.