Introduction
Commercial tenants are often expected to deliver signed estoppel certificates, status statements or tenant acknowledgements in connection with purchase, sale or financing transactions involving leased property. It is also fairly common for tenants to request an estoppel certificate or estoppel language from a landlord when negotiating the transfer of their leasehold interest under a lease. Stemming from the principle of promissory estoppel, estoppel certificates are intended to "estop" a party who signs the certificate from thereafter asserting a fact inconsistent with what is set out in the certificate.1 Should a signatory attempt to make a claim based on facts contrary to what was stated in an estoppel certificate, the addressee of the certificate may argue that it detrimentally relied on the statements in the certificate and seek to estop the signatory from enforcing the rights on which the claim is based.
This paper will, by examining relevant case law: (i) provide an overview of the law surrounding estoppel certificates and illustrate how Courts have dealt with discrepancies between leases and estoppel certificates; (ii) consider how and if estoppel certificates bind landlord/purchasers; (iii) explore how an estoppel certificate should be used by a purchaser of a property; and (iv) consider the interplay between the duty of good faith in contracts and estoppel certificates.
The Law Surrounding Estoppel Certificates and Discrepancies
As noted above, estoppel certificates derive their efficacy from the doctrine of promissory estoppel. The Courts apply a number of general principles to determine whether an estoppel certificate is enforceable as a document that "estops" another party from asserting facts inconsistent with what is set out in the certificate. The most important of these principles include:2 (a) The party signing the estoppel certificate made assurances that were intended to confirm or even affect, the legal relationship between it and the recipient (e.g. statements are made in the certificate that confirm and clarify certain terms of the lease as of the date of the certificate, which in turn may, as we'll see, act as a waiver of some of the rights that were otherwise available to the signing party);
(b) The recipient of the certificate must rely upon the estoppel certificate; and
(c) Due to the reliance on the certificate, the recipient acted on it or in some way changed its position.
Where one or more of these factors is not present, it reduces the effectiveness of the estoppel certificate as a binding instrument.3 Another factor that should be considered is the language of the terms of the estoppel certificate itself. For example, certain assurances a tenant makes in the estoppel certificate may be qualified to state that they are true "to the tenant's knowledge", rather than stating that "the tenant certifies" the list of statements that follow. Such amendments are relatively common and may be negotiated between the parties. In the case of the former, the added language limits the ability of the estoppel certificate to be relied upon as a completely accurate account of the relationship between landlord and tenant since it is only accurate to the extent that the signatory has actual knowledge of the matters addressed. Notwithstanding these caveats, estoppel certificates are very useful tools in commercial real estate transactions.
The functionality of the estoppel certificate is illustrated in Willow Tree Holdings Ltd. v Sims. 4 Despite the fact that the original landlord in the case had fraudulently and negligently misrepresented some facts about the premises to the tenant upon entering into the lease, the Nova Scotia Supreme Court held that by not making her concerns known to the successor landlord when she signed the estoppel certificate, the tenant, by her own actions, reaffirmed the lease and could not subsequently claim the issues subsequently raised. 5 While Willow Tree applies the principle as one would expect, some nuances have developed in the case law.
Willow Tree was most recently distinguished by the British Columbia Supreme Court in Vancouver City Savings Credit Union v New Town Investments Inc.6 The main issue in this case was whether the tenant had previously exercised one of its three renewal options under the lease. After the original term of the lease expired, the parties entered into an amending agreement that "extended" the original term of the lease. The landlord subsequently obtained an estoppel certificate from the tenant wherein the tenant certified that the then current term of the lease was the tenant's first renewal term. However, at the expiry of the term, the tenant stated that it had in fact not exercised one of its renewal options as the amending agreement "extended" the original term rather than "renewing" it. In effect, the tenant was making a statement that was contrary to what it had certified in the estoppel certificate.
The Law Surrounding Estoppel Certificates
Footnotes
1 See Maple Leaf Casinos Inc. v 1071122 Ontario Inc., [1996] OJ No 4894 at para 6.
2 Maracle v Travelers Indemnity Co. of Canada, [1991] 2 SCR 50 at para 13.
3 B. Wilson & S. Ahmad, "Canada: Estoppel Certificates – Do They Work?", Blake, Cassels & Graydon LLP.
4 [1991] 100 NSR (2d) 216, 15 RPR (2d) 277 [Willow Tree].
5 Ibid at paras 49-50.
6 2008 BCSC 1617 [New Town Investments].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.