Newsletter on California Real Estate Law -- Pircher, Nichols & Meeks; Tenant Estoppel Certificate Conclusive as to Tenant, and Maybe Other Parties Too.

Business Editors & Legal Writers

LOS ANGELES--(BUSINESS WIRE)--June 28, 2000

In a decision filed June 13, 2000, the California Court of Appeal for the Fourth Appellate District held that a tenant was conclusively bound by the lease termination date recited in an estoppel certificate delivered pursuant to its lease, even though the recital differed from the actual date. Plaza Freeway Limited Partnership v. First Mountain Bank.

THE CASE

In connection with the sale of a shopping center, the tenant, as required by the lease, signed and delivered to the prospective purchaser an estoppel certificate that, among other things, recited the lease termination date. The first of the tenant's options to renew was required to be exercised at least 12 months before the expiration date. The tenant later sent a notice nine months before the termination date set forth in the certificate, which notice was rejected by the purchaser -- now the landlord -- as untimely. The tenant argued that, under the terms of the lease, the actual termination date was later than recited in the certificate and, therefore, the notice was timely. The trial court agreed with the tenant.

On appeal, the landlord contended that the tenant was estopped from contradicting the termination date set forth in the estoppel certificate, relying on Evidence Code Section 622, which provides, in relevant part: "The facts recited in a written instrument are conclusively presumed to be true as between the parties thereto, or their successors in interest ..." The Court of Appeal concluded that the estoppel certificate was a written "instrument" for purposes of Section 622. The court held that "under Section 622, when a tenant signs and delivers an estoppel certificate, as required under the commercial lease agreement, that tenant is bound to the recitations of fact contained therein." The court added in a footnote that when the conclusive presumption in Section 622 applies, a party does not need to demonstrate detrimental reliance.

SIGNIFICANCE OF THE CASE

This case is a useful reminder of Evidence Code Section 622 and the importance of verifying the accuracy of the recitals in any written instrument. Beyond that, the value of the case is somewhat questionable. Reading between the lines, this appears to be a result-oriented decision in which the appellate court avoided an analysis based on equitable principals of estoppel because it was constrained by the lower court's factual determination that there was no detrimental reliance. Ironically, although the court's "application of section 622 to estoppel certificates (was intended to) promotes certainty and reliability in commercial transactions," this case leaves open several important questions:

-   Lease Requirement. What if the certificate was not required by the
    lease? The court's holding refers to the lease requirement. Did
    the court determine that this was essential to establish
    consideration? Landlords should always draft estoppel certificates
    with customary reliance language, especially if the tenant's
    delivery of a certificate is not required by the lease?

-    Knowledge of Error. What if the tenant could prove that the
     purchaser knew at the time of purchase that the tenant made a
     mistake in the certificate? Could the tenant rescind or reform
     the certificate? It would be imprudent for a purchaser or lender
     to rely on a certificate under such circumstances.

-   Double-Edged Sword? Would the purchaser have been bound by the
    certificate if it contained a mistake in favor of the tenant? If
    "the facts recited in the instrument are conclusively presumed to
    be true as between the parties thereto," is the purchaser one of
    the "parties thereto" and therefore bound even if it does not sign
    the estoppel? Until the legislature or the judiciary provides
    further guidance on the subject, the recipient of an estoppel
    certificate should carefully review it to confirm its accuracy.

For more information or to arrange an interview, contact Leeza Hoyt, APR, The Hoyt Organization, 310/373-0103 or the following attorney at Pircher, Nichols & Meeks: Michael D. Berk, Esq., 310/201-8978.

Founded in 1983, Pircher, Nichols & Meeks is a national real estate law firm with a diversified real estate practice that includes litigation, bankruptcy, corporate, tax and public finance matters. Based in Los Angeles, the 45-attorney firm also maintains a full-service office in Chicago. The Los Angeles office is located at 1999 Avenue of the Stars, Los Angeles, 90067. The phone number is 310/201-8900.