At times tenants (particularly those renting commercially) will receive an estoppel certificate from their landlord during the course of leasing a property. Usually, tenants will be asked to complete or sign an estoppel agreement when their landlord is seeking a loan or selling a property and needs to prove cash flow and the status of any active leases.
Table of Contents
What Is a Tenant Estoppel Certificate?
Are Tenant Estoppel Certificates Important?
Should You Always Sign a Tenant Estoppel Certificate?
What's In a Tenant Estoppel Certificate?
Estoppel Certificates Protect Tenants and Buyers
What To Do If You Receive a Tenant Estoppel Letter
Tenant Estoppel Certificates Bottom Line
What Is a Tenant Estoppel Certificate?
A tenant estoppel certificate, also known as an estoppel letter, is a document used in real estate transactions, particularly in commercial and residential rental properties. It is a signed statement by the tenant that verifies certain facts about their lease agreement with the landlord. Typically, an estoppel certificate provides information about lease terms, rental amount, tenancy status, utility payments, and so on.
The tenant estoppel certificate is often required by potential buyers, lenders, or investors to confirm the terms of the lease and the tenant's compliance with those terms.
Are Tenant Estoppel Certificates Important?
Yes, a tenant estoppel is considered important for two primary reasons. Firstly, it provides prospective lenders or purchasers accurate information about the tenants, and secondly, it assures potential buyers that tenants will not make later claims that are inconsistent with what is written in the estoppel. Here are some of the key things estoppel certificates do.
- Verification of Lease Terms: Confirms the details of the lease agreement, including rent amount, lease term, and any special provisions.
- Assurance for Buyers/Lenders: Provides assurance to potential buyers or lenders that the lease terms are accurate and that the tenant is in good standing.
- Dispute Prevention: Helps prevent disputes by documenting the tenant's acknowledgment of the lease terms and conditions.
- Due Diligence: Part of the due diligence process in real estate transactions, ensuring that all parties have accurate information.
Should You Always Sign a Tenant Estoppel Certificate?
Typically speaking, if a tenant estoppel is filled out accurately, they usually don’t produce any risks for the tenant. However, they should never be used in place of a lease and shouldn’t repeat any clauses stated in the original lease, as this leaves room for ambiguity or misinterpretation. It’s vital that tenants thoroughly read through the terms outlined in an estoppel certificate to ensure that they are aware of the agreements and that they don’t find themselves in a situation where they are in violation of the contract.
If it is written into the terms of a lease that a tenant is required to complete an estoppel certificate, they are legally bound to do so. If they do not, they can be in breach of the lease and face eviction. In the world of commercial real estate, it’s often in the tenant’s best interest to complete an estoppel certificate, as it may cover important aspects of the relationship not outlined in the original lease. Because this is a legally binding document, issues can easily arise over any inaccuracies. Therefore it is of the utmost importance that a tenant estoppel certificate covers every provision as accurately as possible.
What's In a Tenant Estoppel Certificate?
The most common points included in a tenant estoppel certificate are the following:
- When the lease started
- Whether there are any defaults by the landlord or tenant
- The date to which rent has been paid
- Verification that the lease is in effect
- Any modifications made to the lease
Due to the varying nature of different types of commercial real estate, tenant estoppels differ greatly in the clauses that they include. However, due diligence should be taken by all parties to ensure that the estoppel covers terms discussed that are not outlined in the original lease.
Other examples of what an estoppel certificate may include are as follows:
- Use of a parking spot
- Use of onsite storage
- Whether or not pets are allowed
- Use of a backyard or outdoor area
- Whether or not the tenant has permission to sublet parts of the property
- Extensions or renewals of the lease
Estoppel Certificates Protect Tenants and Buyers
Frequently, there is a relationship between a landlord and a tenant where the tenant is allowed to undergo certain actions that are verbally agreed upon but not included officially in writing. For example, say you rent an apartment that has a “no pets” clause in the lease, but your landlord told you she would let you keep your cat. If that landlord then went to sell the property, and the new investors did not have information via a tenant estoppel certificate regarding you being allowed to have pets, you may find yourself having to give up your furry friend. This is why it’s in a tenant’s best interest to accurately review the terms of their original lease and a tenant estoppel certificate, as it ensures that a new landlord or buyer understands any terms previously agreed upon.
For a buyer, requesting that tenants complete estoppel certificates can protect you from unpleasant surprises once you purchase the property, as it eliminates any doubts that could arise over enforceable clauses.
What To Do If You Receive a Tenant Estoppel Letter
If you receive a tenant estoppel agreement, don’t just sign it without thinking, as this could set you up for legal consequences or misunderstandings down the road. The best thing is to check the terms of your lease, which will tell you when you are required to complete the certificate by, or even if you have to sign it at all. Do your due diligence and thoroughly read through the terms outlined to check for any inconsistencies. You’ll want to check for any and all agreements you have made with your landlord that were never written down or recorded and then ensure they are included in the tenant estoppel certificate.
Be sure not to immediately sign an estoppel without ensuring that you are comfortable and aware of everything it states. Signing an estoppel could effectively override or interfere with your original lease agreement, which means that if you sign thinking that your rights are covered by what was stated in the lease, you might be in for a nasty surprise. You could forfeit some of your rights as a tenant, so unless you are completely comfortable and certain of the clauses included in the estoppel, don’t just sign your rights away!
Be aware of estoppels that modify or add any additional terms not already agreed upon. There have been instances of estoppels that waive rights to lease renewals, change the rent due date or amount, and even state that work has been completed by a landlord when it has not. These are all instances that show why you should never sign without fully understanding what you are agreeing to. Remember, once the contract is signed, it is legally binding.
Tenant Estoppel Certificate Bottom Line
A tenant estoppel certificate is an important document in real estate transactions that provides verification of lease terms and tenant compliance. It offers assurance to buyers, lenders, and investors and helps prevent future disputes by clearly documenting the tenant's acknowledgment of the lease details. Both landlords and tenants should approach this process with accuracy and transparency to ensure a smooth transaction.