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Estoppel Certificate Estops Tenant’s Claim

A recent commercial tenancy decision illustrates the significance of Estoppel Certificates. In that case, the tenant inadvertently signed away the chance to get an injunction to block demolition of a building that it may have wanted to purchase for itself.

The tenant was Tilt, which operated a bar and game arcade on property it leased from the landlord. The lease contained a Right of First Refusal (ROFR); anytime the landlord received an acceptable offer to buy its premises, Tilt would have 24 hours to submit a competing bid.

The landlord did receive such an offer, for $6.3 million, from a corporation named Brunswick that intended to develop a hotel on the property. Brunswick also secured over $7 million in financing for the deal.

The landlord did not offer Tilt a ROFR; instead, it gave Tilt a notice of termination and asked it to vacate. Then, for its own protection and at Brunswick’s lender’s behest, the landlord asked Tilt to execute an “Estoppel Certificate”. In that document Tilt attested to the existence of a valid lease and stated that it had no claims against the landlord, which was not in breach of the lease. Tilt executed this thinking it was merely needed to assign the lease to the new owner, Brunswick.

Realizing that it had not been offered the ROFR, and with Brunswick poised to start demolition for the hotel project, Tilt went to court for an injunction, pending a later trial to sort out the parties’ various rights.

In evaluating whether to grant an injunction, the court applied established legal tests. Tilt needed to show there was a “serious issue to be tried,” and that it would suffer “irreparable harm” if the injunction was refused. Tilt also had to show that any harm it would suffer by not getting an injunction would exceed the harm that Brunswick would suffer if the injunction were allowed.

All three of these elements were necessary for Tilt to succeed; the court found that none of them were present in this case.

The crux of the matter was the Estoppel Certificate, and the circumstances in which it was signed. There were numerous potential issues that the document raised – including its interpretation, impact, and legality – but none were tantamount to the “serious question to be tried” needed to support the injunction Tilt was requesting.

For example, the fact that Tilt signed the Estoppel Certificate thinking it was for a lease assignment was irrelevant to its purpose and effect: It was designed to prevent Tilt from later disclaiming the lease or asserting that the landlord was in breach of it. Tilt also signed it in circumstances where it must have known it would be relied on not just by the landlord, but by others as well.

In the face of that Estoppel Certificate, Tilt simply could not now come to court and claim that the landlord breached the lease (i.e. the ROFR) and use that allegation to support its injunction request. But for the existence of that Certificate, Tilt would have been successful. However, based solely on its legal effect, the Estoppel Certificate precluded the court from finding a “serious issue to be tried” for the purposes of justifying the injunction.

While this alone was enough to end the matter, the court added that Tilt had also failed to show it would suffer irreparable harm without an injunction. Any disadvantage or losses arising from the landlord’s disregard of the ROFR could be compensated in damages. On the flip-side, the injunction would entirely halt Brunswick’s business operations, and cause it to incur unforeseen costs because of the unexpected delay in demolition.

The court rejected Tilt’s injunction bid to halt Brunswick’s demolition pending trial. See: 1960529 Ontario Inc. v. 2077570 Ontario Inc., 2017 ONSC 5254.