The strength of a borrower`s leases will play a role in the decision to provide financing, and an estoppel certificate can help assess the value of a lease by providing the lender with a current overview of a lease and confirming its terms, parts, and any outstanding obligations. They support borrower disclosure by disclosing whether a landlord borrower is responsible for things like completing “landlord work” and paying the tenant in the form of a tenant improvement allowance. This information can be used by a lender as a basis for risk assessment and provides insight into the operational realities of the landlord-tenant relationship that cannot be found by looking only at rental records and the rental list. This allows a lender to have a clearer picture of the revenue streams they can expect in case they need to enforce their collateral. Estoppel certificates also provide the lender with information about whether there have been any omissions on the part of the landlord or tenant, whether options have been exercised to extend the term or expand the premises, and give an indication of the degree of cooperation between the parties. They also allow a tenant to present their point of view regarding the landlord`s ability and willingness to meet their obligations. An estoppel certificate, also known as a tenant`s recognition or declaration of status, serves a lender as an independent review of the terms and status of a particular lease from the tenant`s perspective and enhances a borrower`s disclosure to a lender. While not immune to dispute, these documents can be used to prevent a tenant from making claims in the future that are inconsistent with the certificate with respect to matters that existed prior to the date of the certificate. Because of a lender`s reliance on income streams associated with real estate to be used as collateral in a commercial mortgage financing transaction, leases that exist on a borrower`s property are that borrower`s most important assets, as well as the value of the land to be pledged. Since these leases are a key part of the collateral a lender takes in connection with a financing, a lender would do well to carefully assess their value when assessing the risk associated with the financing transaction. Overall, a full range of pre-closing estoppel certificates will allow the lender to improve the level of disclosure of details of its borrower`s income streams and lease obligations in order to complement and support its mortgage collateral package. Subject to the restrictions included in a particular lease, an estoppel certificate should generally include the following provisions:.
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