Mean What You Say, Say What You Mean: Tenant Estoppels Do Work

• Published date: 31 August 2021
• Subject Matter: Real Estate and Construction, Landlord & Tenant - Leases
• Law Firm: Cadwalader, Wickersham & Taft LLP
• Author: Mr Steven Herman and Andrea G. Weitzman

One of the standard tasks in real estate work is reviewing and analyzing tenant estoppels in connection with a potential loan or real estate purchase of a building with commercial tenants. A tenant estoppel is a signed certificate made by a tenant certifying for the benefit of a potential buyer and/or lender of a property that certain material terms of its lease are correct as of a certain date. Potential lenders rely on tenant estoppels for purposes of their underwriting and due diligence by taking into account representations from the tenant, such as the actual rent that is currently being paid, the amount of outstanding improvement allowances, whether any defaults, offsets or abatements to rent exist and expiration dates.

In May of 2021, the Illinois Court of Appeals (the 'Court') held that estoppels are enforceable against a tenant's subsequent actions and claims. In Uncle Tom's, Inc. v. Lynn Plaza, LLC (2021 IL App (1st) 200205 (May 21, 2021)), the plaintiff, Uncle Tom's, Inc. ('Uncle Tom's'), leased and operated a restaurant known as Market Square Restaurant in a strip mall owned by the defendant, Lynn Plaza, LLC ('Lynn Plaza'). Uncle Tom's lease was set to expire in 2013, and in 2005, Uncle Tom's attempted to exercise its 15-year extension option under its lease, but the parties could not agree on the square footage of the renewed lease for purposes of calculating base rent for the extension period. In 2011, Uncle Tom's filed a complaint with the Circuit Court of Cook County (the 'Circuit Court') for declaratory judgment on the rent issue and also filed an equitable accounting claim for certain disputed amounts of common area maintenance ('CAM') charges that Uncle Tom's had paid to Lynn Plaza over the years. Uncle Tom's complained that Lynn Plaza incorrectly charged and received certain CAM charges that were not included in the description of CAM charges under the lease. The disputed CAM charges were for management fees (billed and paid in January of 1998 for the year 1997) and easement charges for the use of a parking lot owned by a neighboring power company, which Uncle Tom's had been paying for with CAM charges for almost 10 years. In July of 1998, in connection with a loan Lynn Plaza was seeking for the strip mall, Uncle Tom's principal executed a tenant estoppel certificate representing to the proposed lender that 'rent had been paid through July 1998' and that 'there were no defenses to or offsets against the enforcement of the Lease or any...