Daily Development for Wednesday, March 24, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu

LANDLORD/TENANT; ESTOPPEL CERTIFICATES; CONFLICTS WITH INCORPORATED AGREEMENT: Where estoppel certificate signed by tenant indicates that tenant has no renewal options, but it refers to lease in which such options are set forth, an ambiguity arises that will be resolved by construing against the party in a position to avoid the ambiguity - in this case the party drafting both the lease and the certificate.

Miner v. Tustin Ave. Investors,10 Cal Rptr. 3d 178 (Cal. App. 2004) (this case was also the subject of the DD for March 23)

Tenantís lease had a contemporaneously executed addendum that contained a right of renewal. It also contained an obligation on the part of tenant to execute an estoppel certificate upon request. Later, landlord sold the landlordís interest to another party, and in connection with that transfer tenant executed a form estoppel certificate, selected by landlord, that contained a paragraph stating that there were no renewal or extension rights except as set forth below. There followed a series of blank lines, apparently intended for listing specific renewal or extension rights. In the version signed by tenant, these lines were left blank.

Of course, when renewal time came and tenant sent timely notice, the successor landlord refused to honor the renewal, taking the position that the estoppel certificate modified the renewal rights in the lease, even though the landlord had knowledge at the time of the original transfer and certificate that the lease contained a renewal right. Tenant argued that, since everyone knew of its renewal right in the lease, the certificate language was designed to elicit a statement of rights other than those contained in the lease.

The court pointed out that it is quite common for there to be post execution agreements between landlords and tenants about lots of things, including extensions and renewals, and that it would be quite common for the parties to use an estoppel certificate to preclude any possibility that the transferee of the estate would be viewed as on inquiry notice of those rights. Therefore, the tenantís argument made some sense, although, of course, the literal language of the estoppel certificate operated against it.

To get around the literal language, the court concluded that, under the circumstances, the language was ambiguous, and then stated that ambiguity was to be interpreted against the landlord. Here, since the landlordís predecessor drafted both the certificate and the lease, the court concluded that the ambiguity should be resolved in favor of the tenantís construction.

Comment: Is it fair to saddle the transferee with an ambiguity created by the landlord? As between the assignee and the tenant, isnít the tenant in the best position to clarify the ambiguity? How would you read this certificate if you received it? Would you think that it might be a good idea to mention the renewal rights in the blank lines?

On the other hand, if you were the transferee, and received this certificate with the lines blank, would you feel you were justified in concluding that the parties had cancelled the express renewal option set forth in a lease addendum that you had read?

If, indeed, each side had a good faith believe in its position, then we indeed have a muddle. The editor believes that the court was of the view that the tenant in fact was confused but that the transferee knew very well that the tenant expected to be able to execute the renewal. The editor suspects the same thing.

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