An estoppel certificate is a signed statement is separate from your lease agreement, but it is also legal and binding when presented in court.
With that said, it’s CRUCIAL to understand how a tenant estoppel letter works so your rights are fully protected during any potential disputes.
- If you’re a landlord, read on to learn more about an estoppel agreement, how it works, and when to use it!
- If you’re a tenant, we’ll help you figure out what to do if you have to sign one at your landlord’s request!
- If you are studying for your real estate exam, you need to understand the perspective of both the landlord and the tenant.
8 Things You Should Know About Estoppel Certificates
#1 – An Estoppel Certificate Verifies and Explains Your Rental Agreement
Did you know that ‘estoppel‘ is actually a legal concept that prevents people from going against their word?
For commercial leases, an estoppel certificate reinforces the agreement made by two parties—the landlord and the tenant—and also expounds on the underlying lease.
This is usually a summary of important conditions in the contract as well as the tenant’s rights and privileges.
It also provides some information about the current status of the lease, such as:
- Whether rental payments are being made on time
- If there are any unresolved problems between the landlord and the tenant
- If there are specific clauses in the contract that have been altered over time
An estoppel letter contains all of these to solidify the lease agreement, strengthen proper enforceable clauses, and protect both the landlord and the tenant from problematic situations in the future.
#2 – An Estoppel Certificate Is Often Used for Commercial Real Estate
Why do landlords ask tenants to sign an estoppel letter? Well, most commercial real estate transactions require one from the landlord as a safety measure.
For example, a landlord who plans to loan money and use his property as collateral will need to present a tenant estoppel certificate to the bank/lending party during the due diligence phase.
This is because financial institutions want to ensure the lease exists and that the landlord receives sufficient cash flow to pay off the money he borrowed. Only then will he be eligible for a loan!
Another situation that requires a tenant estoppel certificate is when a landlord wants to sell his property to a potential buyer.
The estoppel certificate requests information about lease terms, lease amount, security deposits, rent commencement date, prepaid rents, existing renewals, and any other oral or written agreements that were made between the tenant and the previous landlord.
Any prospective buyer will need these details during the due diligence phase (and before he finalizes the sale).
After all, when he becomes the new landlord of the property, he’ll have to answer to any existing or future claims made by the tenants!
#3 – Your Lease Agreement May Require You to Sign an Estoppel Certificate
Now, do you REALLY need to sign an estoppel agreement? Well, it depends if your lease requires you to or not.
More often than not, landlords include a lease provision pertaining to estoppel letters in the rental agreement.
Like we mentioned earlier, an estoppel statement is an important document in commercial real estate transactions, so this is the most effective way to make sure tenants comply if the need arises.
HOWEVER, if there is no such clause in the rental contract, you do not have to sign an estoppel certificate if you don’t want to.
#4 – Estoppel Agreements Need to Be Reviewed Thoroughly
Just like with any legal document, make sure to go over your tenant estoppel certificate THOROUGHLY before signing it.
Don’t just give it a brief read-through and assume it restates your rental contract. REMEMBER, this is a binding contract that your landlord can use against you in future disputes.
We recommend reviewing BOTH the contract and the estoppel agreement to check for any inconsistencies or suspicious clauses.
Make sure everything is clearly stated, accurate, and in line with any oral or written agreements you’ve made with your landlord.
If you need help, consider consulting a lawyer for expert legal advice. A solid attorney-client relationship will reduce any big risks and harms. Trust us, it’s better to be safe than sorry, especially in tricky situations!
#5 – Tenant Estoppel Certificates Need to Be Submitted in a Timely Manner
Required to submit an estoppel letter to your landlord? Don’t forget to sign it before the deadline!
Most rental agreements will state that tenants have to send in their estoppel agreement by a certain date. If the tenant fails to do so, he may have to pay financial penalties to the property owner. In the worst-case scenario, the tenant may even be evicted for violating the lease!
If nothing is stated in the lease, it’s best to call up the landlord and confirm.
#6 – A Tenant Estoppel Certificate Actually Protects Tenant Rights
As a tenant, you might be wary about signing an estoppel certificate, but it can actually be pretty beneficial for you!
Remember, a tenant estoppel letter reinforces the terms of your lease (as well as any informal add-ons that were agreed upon after the contract signing), so this will validate any important clauses you want to retain in the lease.
This is particularly helpful for tenants who will soon be under a new landlord.
Some relevant terms you may want to discuss are:
- Rent reduction agreements
- Rent increases
- Water and electricity payments
- Free parking and storage space
- Security deposit interest
- Permission to sublet or get a roommate
- Permission to have pets
Make sure to indicate benefits that you enjoy now (which may not be specifically stated in the lease you previously signed) so that you’ll be fully protected even if the property changes ownership.
Otherwise, if the new landlord charges you extra fees/rent for violating a term in the lease that was altered after signing, you won’t be able to present any legal proof that it is, in fact, allowed.
#7 – An Estoppel Certificate Binds Both the Landlord and the Tenant of the Commercial Property
Just like your lease, the estoppel certificate is legally binding. A party’s delivery of the estoppel certificate prevents the tenant or the landlord from claiming to have made agreements that aren’t true.
Upon signing the document, both the tenant and the landlord agree that all the terms listed are factual and accurate.
Thus, the estoppel certificate can be used in court (along with the lease) to settle real estate disputes between tenants and landlords.
In fact, tenant estoppel agreements can even OVERRIDE the lease in certain situations!
On the tenant’s behalf, this prevents future landlords from negating any non-written rights and privileges that he’s accustomed to enjoying.
At the same time, it protects the landlord from a tenant claiming to have unfulfilled agreements with the previous owner of the real estate property.
#8 – The Consequences of Failing to Sign an Estoppel Certificate Depends on Your Lease Terms
What happens if a tenant doesn’t sign an estoppel certificate? If this is required by the lease, one of the following consequences could happen:
- Compulsory financial penalties and fees (such as extra rent)
- Eviction
- Automatic admission that everything in the tenant estoppel certificate is true
- Automatic appointment of the landlord as your attorney-in-fact
Remember, it’s actually in your best interests to sign an estoppel letter if you have non-verbal agreements with your landlord that aren’t formally written in the lease.
With that said, if you still have any doubts and/or clarifications to bring up, it’s a good idea to bring them up with the landlord so that you can negotiate and come to a mutual agreement.
This is much better than refusing to sign the estoppel letter and opening yourself up to the consequences above!
If your landlord is automatically appointed as your attorney-in-fact, you may have to comply with terms that are disadvantageous to you. Try to avoid this AT ALL COSTS!
In Summary
An estoppel certificate is an important legal document that summarizes the agreement between a tenant and a landlord.
This can be used as a basis in court cases, so both parties should make sure it clearly AND accurately represents their rights, responsibilities, and privileges.
As a landlord, don’t forget to add this stipulation to your rental contract, especially if you plan to sell in the future. Estoppel certificates make it easier to hand over properties without the risk of disputes.
If you’re a tenant, on the other hand, know that it’s extremely important to do your due diligence by reviewing the contracts thoroughly, clarifying any ambiguous statements, and clearly stating your rights.
This way, if a seller or a real estate agent goes back on his word and violates a clause in the estoppel statement, you can win the case AND recover damages!
Both parties should also consider seeking professional help to make sure their rights and interests are fully covered by the estoppel certificate.
Conclusion
Understanding estoppel certificates is DEFINITELY a useful skill for anyone who buys, sells, or rents properties.
Although real estate agents and lawyers can definitely help you out, it’s always best to have a basic knowledge of concepts like these so that you can protect yourself from any risks along the way.
Remember, learning won’t cost you anything, but a big mistake due to ignorance definitely will!
