Estoppel Certificate Precluded Tenant's Breach Claim

Facts: The exclusive-use provision in a tenant's lease barred the owner from renting space in its shopping center to other tenants that sold stationary and school supplies. Several months later a school supply store opened in the center, but the tenant didn't object.

When one of the center's investors wanted to become a co-owner, it asked for an estoppel certificate from each of the center's tenants regarding their current leases. On its estoppel certificate, the tenant stated that in its knowledge, the owner was not in default in “the performance or observance of any of its obligations under any terms or provisions of the lease.”

Relying on the information in the tenants' estoppel certificates, the investor went through with the deal. The tenant later informed the owners that by renting to the competing school supply store tenant, they had violated the exclusive-use provision of its lease agreement.

The tenant notified the owners that it would begin paying reduced rent, and it sued them for allegedly breaching the lease. The owners sued the tenant for past-due rent and a declaration that they were not in breach of the lease and that it would continue in full effect.

The tenant and the owners each asked the trial court for a judgment in its favor without a trial. The trial court ruled in favor of the owners. It found that the tenant was precluded by its estoppel certificate from claiming that the owners had breached the lease. The tenant appealed.

Decision: A Georgia appeals court upheld the decision in favor of the owners.

Reasoning: In its estoppel certificate the tenant represented to the investor that no default had occurred—and the investor relied on that representation in completing the transaction that would make it a co-owner of the center. However, at the time the tenant executed the certificate, the competing tenant that allegedly caused the breach of the tenant's lease had already been in operation for several months, the appeals court noted. Moreover, shortly after the certificate had been executed, the investor's representative spoke with the tenant's store manager, who reiterated that it had no problems with the lease or the center's owner.

The tenant argued that any reliance on its certificate by the investor was unreasonable because the owner already knew that the competing tenant's lease violated the exclusive-use provision. The appeals court disagreed. It pointed out that in a second interview conducted by the owner and investor prior to the sale, the tenant's store manager again revealed no complaints about the competing tenant. Based on that investigation, the investor determined that the competing tenant was not in the “primary business” of displaying or selling school supplies and that its presence in the center did not violate the tenant's exclusive-use provision. And the tenant had no evidence that at that time the owner knew that the exclusive-use provision had been violated. The appeals court concluded that reliance on the certificate was reasonable. Under those circumstances, the court decided, the tenant couldn't claim that the owners violated the exclusive-use provision by leasing space to the competing tenant.

• Office Depot, Inc. v. The District at Howell Mill, LLC et al., May 2011