Landlord & Tenant

AppTerm, First Dept.

(memorandum opinion)

In landlord's commercial nonpayment proceeding, landlord appealed from Civil Court's denial of its motion for summary judgment on the issue of liability. The Appellate Term modified to grant the motion and to remand for trial on damages.

A 1994 lease between the parties' predecessors obligated tenant to pay consumer price index and real estate tax escalations. In 2008, current tenant signed an estoppel certificate under the terms of which tenant agreed that it was occupying pursuant to the 1994 lease and successive assignments, including a May 2000 “assignment and surrender agreement.” By the terms of that agreement, tenant, as assignee, stipulated that it was assuming all obligations arising under the 1994 lease agreement, which was to remain “in full force and effect.” In resisting payment of the escalation obligations, tenant relied on a Standard Form of Store Lease executed by the parties in July 2000. Tenant contended that the July 2000 lease was a stand-alone agreement from which its rent obligations were solely derived.

In holding that landlord was entitled to summary judgment on the liability issue, the court ruled that there was no basis to deny effect to the terms of the 2008 estoppel certificate. The court then rejected tenant's argument that the May 2000 assignment was not binding because landlord had not consented to the assignment. The court emphasized that a restriction on lease assignments is for the landlord's benefit, and only a landlord ' not a tenant's assignee ' has standing to invalidate the assignment based on a requirement of landlord consent.

COMMENT

Ordinarily, estoppel certificates preclude a signer from contesting facts that exist at the time the certificate was prepared, but not facts that arise subsequently. For instance, in ReliaStar Life Ins. Co. of New York v. Home Depot U.S.A., Inc., 570 F.3d 513, tenant Home Depot signed an estoppel certificate stating that it understood that the property contained no defects at the time tenant took possession. The court held that the certificate did not bar tenant from contending that defects arising after Home Depot took possession constituted a breach of the lease by the landlord.

On the other hand, when one party induces another to sign an estoppel certificate that recites facts the inducing party knows or has reason to know are mistaken or false, courts may preclude the inducing party from relying on the certificate. Thus, in Bush Realty Associates v. A.M. Cosmetics, Inc., 770 N.Y.S.2d 19, the court suggested that an estoppel certificate as to lease terms concerning calculation of rent would be unenforceable if the inducing party included in the certificate a cost-of-living calculation that they knew was at odds with the rent formula prescribed in the contract. The suggestion in Bush Realty, however, was only dictum because the court enforced the estoppel certificate, finding no evidence that the inducing party knew the certificate was inconsistent with the rent formula in the lease.

In some circumstances, courts have enforced estoppel certificates designed not to preclude dispute over fact questions, but instead to create new legal rights against the party signing the certificate in much the way that a contract would create those legal rights. For instance, in General Elec. Capital Corp. v. Domino's Pizza Inc., 1994 WL 256776, when landlord assigned its lease to an assignee, the assignee prepared an estoppel certificate stating that tenant Domino's “understood” it was not permitted to modify or terminate its lease without consent from landlord's assignee. Tenant argued that the estoppel certificate created no limitation on tenant's rights, because the certificate included no language of contract. Rejecting tenant's argument that this was just an understanding, the court gave a broad reading to the certificate and held that the “understanding” was equivalent to an agreement.

Tenant's Assignee Has No Standing

210 West 70 Owner LLC v. Cosmic Group

NYLJ 5/21/12, p. 21, col. 1

AppTerm, First Dept.

(memorandum opinion)

In landlord's commercial nonpayment proceeding, landlord appealed from Civil Court's denial of its motion for summary judgment on the issue of liability. The Appellate Term modified to grant the motion and to remand for trial on damages.

A 1994 lease between the parties' predecessors obligated tenant to pay consumer price index and real estate tax escalations. In 2008, current tenant signed an estoppel certificate under the terms of which tenant agreed that it was occupying pursuant to the 1994 lease and successive assignments, including a May 2000 “assignment and surrender agreement.” By the terms of that agreement, tenant, as assignee, stipulated that it was assuming all obligations arising under the 1994 lease agreement, which was to remain “in full force and effect.” In resisting payment of the escalation obligations, tenant relied on a Standard Form of Store Lease executed by the parties in July 2000. Tenant contended that the July 2000 lease was a stand-alone agreement from which its rent obligations were solely derived.

In holding that landlord was entitled to summary judgment on the liability issue, the court ruled that there was no basis to deny effect to the terms of the 2008 estoppel certificate. The court then rejected tenant's argument that the May 2000 assignment was not binding because landlord had not consented to the assignment. The court emphasized that a restriction on lease assignments is for the landlord's benefit, and only a landlord ' not a tenant's assignee ' has standing to invalidate the assignment based on a requirement of landlord consent.

COMMENT

Ordinarily, estoppel certificates preclude a signer from contesting facts that exist at the time the certificate was prepared, but not facts that arise subsequently. For instance, in ReliaStar Life Ins. Co. of New York v. Home Depot U.S.A., Inc., 570 F.3d 513, tenant Home Depot signed an estoppel certificate stating that it understood that the property contained no defects at the time tenant took possession. The court held that the certificate did not bar tenant from contending that defects arising after Home Depot took possession constituted a breach of the lease by the landlord.

On the other hand, when one party induces another to sign an estoppel certificate that recites facts the inducing party knows or has reason to know are mistaken or false, courts may preclude the inducing party from relying on the certificate. Thus, in Bush Realty Associates v. A.M. Cosmetics, Inc., 770 N.Y.S.2d 19, the court suggested that an estoppel certificate as to lease terms concerning calculation of rent would be unenforceable if the inducing party included in the certificate a cost-of-living calculation that they knew was at odds with the rent formula prescribed in the contract. The suggestion in Bush Realty, however, was only dictum because the court enforced the estoppel certificate, finding no evidence that the inducing party knew the certificate was inconsistent with the rent formula in the lease.

In some circumstances, courts have enforced estoppel certificates designed not to preclude dispute over fact questions, but instead to create new legal rights against the party signing the certificate in much the way that a contract would create those legal rights. For instance, in General Elec. Capital Corp. v. Domino's Pizza Inc., 1994 WL 256776, when landlord assigned its lease to an assignee, the assignee prepared an estoppel certificate stating that tenant Domino's “understood” it was not permitted to modify or terminate its lease without consent from landlord's assignee. Tenant argued that the estoppel certificate created no limitation on tenant's rights, because the certificate included no language of contract. Rejecting tenant's argument that this was just an understanding, the court gave a broad reading to the certificate and held that the “understanding” was equivalent to an agreement.