Tenant Estoppel Certificate in Real Estate: The Easy to Understand Explanation

tenant estoppel certificate

Your landlord may have decided to send you an estoppel certificate. Unfortunately, you may have no idea what this entails or how you’re affected.

Many questions can come up, including whether or not you’re required to sign the estoppel certificate, when you should sign it and how to review it. As you read on, we’ll discuss what an estoppel certificate is, why it’s essential and what this certificate includes.

What is an Estoppel Certificate?

In real estate terms, an estoppel certificate outlines the conditions currently in place for a lease agreement. In the details of this certificate, you’ll find out more about the relationship between tenants and the landlord.

The estoppel certificate may also be additional information regarding what rights exist for any tenants currently living at that property. But, again, you’ll find only the most critical information included that is factual and completely accurate.

Alternative Terms for an Estoppel Certificate

You may also receive documentation that is titled a rental information questionnaire or tenant rental information declaration. This paperwork is the same thing as estoppel, so you should expect to see the same information included.

Why an Estoppel Certificate Important

A landlord may decide that they would like one of their tenants to sign a certificate as a form of verification of the cash flow coming in when a landlord is seeking a loan.

On the other hand, a landlord could also issue an estoppel certificate with selling their leased property to potential investors. Again, a new landlord would do their due diligence and use this information to learn more about the status of the active leases in place.

A prospective purchaser will want to ensure that there aren’t currently any claims against the landlord that would affect future rent payments.

Many leases contain non-negotiable terms, which will prevent any instances where they would incur expenses that they didn’t plan for. For example, a tenant may want to say they have a lower monthly payment than they do.

However, a tenant’s signature on the certificate confirms the information you have read is accurate, and your landlord has agreed to everything as well.

As another example, if your landlord lets you bring your cat into your apartment, but the estoppel said there’s a no-pet policy on the leased premises, then you could be required to rehome your pet or yourself. Otherwise, it can count as a breach of the lease.

Moving forward, your signature on the certificate will prevent you from making claims against the details of the estoppel.

However, a tenant is also protected—a landlord needs to follow any obligations they make in the lease terms. If either the tenant or landlord needs to make any modifications, it needs to be appropriately documented.

For instance, the new owner will have to replace the flooring, paint your walls or fix an appliance based on a previous rental agreement.

Types of Properties That Require an Estoppel

There are currently three types of properties where using estoppel certificates is necessary. These properties include multi-family real estate locations, commercial real estate properties, and some residential properties. Let’s look at these different properties in a bit more detail.

Multiple-Family Real Estate Dwellings

When you have multiple tenants living on one property, there will be more than one lease present. Of course, you’ll have fewer leases than commercial property, but it’s still important to have everything documented.

You want to prevent any argument, such as:

  • how much is the security deposit,
  • who is waiting for repairs and replacements,
  • and the lease details.

Residential Real Estate

It’s relatively uncommon for you to find one of these agreements for residential real estate property. There isn’t as big of a risk involved, and there’s an inspection process to spot any problems present.

A landlord may ask someone interested in a residential property to sign a rental information questionnaire or utilize a verbal agreement, which helps clarify expectations. Hence, a signed statement ensures there are no issues later on.

Commercial Real Estate

There’s a lot involved in commercial leases, making this the perfect scenario for an estoppel certificate. The certificate will outline rent amounts and adjustments along with the party responsible for certain expenses moving forward.

Are Tenants Required to Complete an Estoppel?

Whether or not a tenant is required to sign this certificate should be outlined in the original lease agreement. Upon the landlord’s request, the tenant must sign the agreement in a pre-determined period.

It’s mandatory to complete the information within that time frame if you don’t want to deal with repercussions. Suppose the tenant chooses not to complete the certificate by the listed date or refuses to sign. In that case, the landlord has the option to complete the information themselves based on the assumption that all of the information listed is accurate.

There is also the possibility that the landlord will issue a late fee if the tenant doesn’t complete the paperwork on time. Furthermore, the tenant could also be held liable for any damages because of the failure to comply. Therefore, it’s in the best interest of everyone involved to adhere to the request.

What does an Estoppel Certificate Include?

Your average estoppel certificate will be about one page in length, making it relatively easy to review and understand. The certificate will include several pieces of information.

You’ll find the information for both the landlord and the tenant. The certificate should also include the address of the apartment. Additionally, the estoppel will also outline the start and end date for the lease, prepaid rent amounts, and security deposit information.

If there have been any defaults for the information in the certificate, renewals and extensions will also include it.

There aren’t necessarily any disadvantages to signing an estoppel letter as a tenant. As long as the tenant reviews all of the information for accuracy, they’ll be fine.

If a tenant signs without checking the data, this could end up causing problems later on down the road. Your landlord is in no way obligated to honor any other agreement that the estoppel doesn’t detail. It doesn’t take long to fact-check this information, and you can let your landlord know if there is anything that you’re concerned about.

No matter what the agreement or promise a landlord makes, the certificate should include it. For example, if a landlord fails to provide certain services or items, a tenant should ensure this information is in the estoppel certificate before signing. Otherwise, they could be signing away your right to those things moving forward.

Final Thoughts

An estoppel agreement is a way to show proof of the agreement between the landlord and tenants. This certificate provides assurance when a potential buyer is looking to purchase an investment property, and an owner is applying for a loan from various lenders or other residential and commercial real estate transactions.

Thus, the tenant estoppel certificate needs to include any special agreement between landlord and tenant. Although there may be an oral agreement of permission, it is safe to have any agreements in the official estoppel. Otherwise, any new management may not honor any undocumented agreement.

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Jonathan is a husband and father to two crazy kids. He is an engineer, real estate investor, and personal finance blogger. He owns a small real estate business that operates a couple of investment properties in his local market. He has been featured in Business Insider, USA Today, FOX Business, The Simple Dollar, The Dollar Sprout, and more! Join him on Twitter,FacebookInstagram, and Pinterest.

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