The requirement that the owner of a shopping center obtain an estoppel certificate from all of the tenants of the shopping center is one of the least understood parts of the shopping center sale or financing process. Although most buyers and lenders require the delivery of tenant estoppel certificates as a condition to making any purchase or receiving financing, many shopping center owners leave the procurement of tenant estoppel certificates as one of the last conditions to complete. This can result in delays or transactions that fail to close.

Owners must begin the tenant estoppel process as early as possible. If a shopping center owner waits until after a sale or financing agreement has been entered into, the owner may learn of problems that are impossible to correct before the proposed date of closing.

By starting the process early, an owner can learn of and fix any problems without the time pressure of attempting to close a sale or financing. If a shopping center owner learns that a tenant is not required to deliver an estoppel certificate or that a tenant is only required to make a limited statement with regard to basic tenant matters, the shopping center owner can alert the buyer or lender of such fact during the negotiation process before the sale or loan agreement has been finalized.

Further, the owner's lease form should contain an estoppel certificate clause that requires tenants to deliver estoppel certificates to the owner in the form attached to the lease within a few days of the request. The tenant estoppel certificate forms should contain a definitive statement with respect to all basic lease terms:

* the rent commencement and expiration date,

* whether there are any options to extend the lease or expand the premises,

* the amount of minimum, percentage and additional rent payable by the tenant and the dates to when such rent has been paid,

* whether there are any landlord defaults, etc.

Because completing an estoppel certificate can be a time-consuming task for a tenant, shopping center owners should provide as much information as possible on each tenant estoppel certificate before sending it to the tenants.

Tenant estoppel certificates have become an important part of almost all sale and financing transactions because most buyers and lenders are much more thorough in their due diligence reviews. Today's buyers and lenders will not limit their reviews to an examination of the tenant leases.

While a typical transaction will include a purchase or loan agreement - with the shopping center owner making various representations, warranties and indemnities regarding tenant matters - buyers and lenders often feel that tenant estoppel certificates provide more security with regard to each tenant's status and the financial operations of the shopping center as a whole.

Requiring shopping center owners to obtain estoppel certificates also provides buyers and lenders with a very valuable legal tool. Once a tenant makes a statement in a tenant estoppel certificate, that tenant will be "estopped," or blocked, from acting contrary to that statement in the future.

If a tenant thereafter makes a claim against the shopping center owner, that tenant's estoppel certificate can be used by the owner to defend against the claim. If the sale or financing is completed, the buyer or lender can use the tenant estoppel certificates that were obtained to prevent the tenants from making future claims that are in conflict with their estoppel certificates.

Most problems with tenant estoppel certificates are caused by poor planning or by the failure of the owner to perform adequate pre-sale or pre-financing due diligence. A shopping center owner should review all of its tenant leases before seeking to sell or refinance its shopping center to make sure that the tenants actually are required to deliver tenant estoppel certificates.

In addition, despite the fact that a lease may require that the tenant deliver an estoppel certificate, there is no guarantee that the tenant actually will deliver the estoppel certificate in the required time period. A buyer or lender may not be concerned by the owner's failure to obtain a tenant estoppel certificate from a small tenant that represents an insignificant portion of the shopping center's cash flow. However, the failure to obtain an estoppel certificate from an anchor tenant will almost certainly delay any sale or financing transaction.

William H. Jackson III is an attorney with the Los Angeles-based law firm of Pircher.