Estoppel Certificate: Guide for Tenants and Landlords

By: ROS Team

Are you buying, selling, or refinancing a property with tenants involved? Then you’ve likely come across the term “estoppel certificate.” This document plays a vital role in ensuring a smooth real estate transaction for both tenants and landlords.

But what is an Estoppel Certificate, and how does it affect you? In this guide, we’ll break down everything you need to know about estoppel certificates, from their purpose and content to who signs them and why they matter.

What Is an Estoppel Certificate?

An estoppel certificate (or Estoppel Letter) is a legal document used to confirm the current status of lease terms from the perspective of a tenant for the benefit of a third party. Typically, it requires the tenant to verify key aspects such as the payment of rent and any potential claims against the landlord.

This certificate is commonly employed in situations where the landlord is selling the property or refinancing the mortgage, providing assurance to the buyer or lender regarding the lease agreement’s terms and the tenant’s compliance with them.

What Is the Purpose of an Estoppel Certificate?

An estoppel certificate is a document used in real estate transactions, particularly during the due diligence process. It serves two main purposes:

To confirm the lease agreement details. The tenant verifies the current lease terms with the landlord. This includes rent amount, security deposit, lease dates, and any changes made to the original contract.

To prevent future disputes. By signing the certificate, the tenant cannot later claim something contradictory to the information provided. This safeguards the new owner or lender involved in the transaction.

Why Do Landlords Request Estoppel Certificates from Tenants?

Landlords request estoppel certificates from tenants to make the sale or financing of their property run smoothly. The certificate confirms key details like rent payments, lease validity, and any disputes. This information matters for potential buyers or lenders who need to understand the property’s income and obligations accurately.

Estoppel certificates prevent misunderstandings later on. They also stop tenants from changing agreed terms after the sale. For landlords, estoppel certificates ease successful transactions and protect their interests. It’s a win-win situation.

What’s in a Tenant Estoppel Certificate?

A typical tenant estoppel certificate includes:

Tenant Identification: This includes the tenant’s name and contact information for easy communication.
Leased Premises: It specifies the exact unit or space the tenant occupies within the property.
Lease Term: This section details the lease start and end dates, providing a clear picture of the tenancy duration.
Financial Details: The certificate confirms the current monthly rent amount and the security deposit the landlord holds.
Lease Modifications: Any amendments made to the original lease agreement, like changes in rent or additional terms, are documented here.
Payment Status: This section clarifies any outstanding rent owed by the tenant or any prepaid rent exceeding 30 days.
Concessions and Obligations: Landlord-provided concessions, such as free parking, and any outstanding maintenance or repairs the landlord is responsible for are listed.
Defaults and Defenses: The certificate inquires about any defaults by either the tenant (unpaid rent, property damage) or the landlord (failing to provide promised amenities). It also allows the tenant to disclose any reasons they believe justify non-compliance with lease terms.

What Types of Properties Require an Estoppel Certificate?

Estoppel certificates are most commonly required for the following property types:

1. Multi-family Real Estate

For properties like apartment complexes, condos, and townhouses housing multiple tenants, estoppel certificates are essential. Managing numerous leases can be complex, and these certificates ensure accurate information about each tenant’s lease terms.

2. Commercial Real Estate

In the commercial property sector, estoppel certificates are crucial for office spaces, retail stores, warehouses, and industrial facilities. These properties often involve substantial lease agreements. The certificates confirm lease details, rent payments, and potential disputes, enabling informed decisions for buyers and lenders.

3. Residential Real Estate (Less Common)

While less frequent, estoppel certificates can be requested for single-family homes, especially those with homeowners’ associations (HOAs) or specific covenants. They help verify compliance with HOA rules, outstanding dues, and any property-related legal issues.

Are Tenants Required to Complete an Estoppel Certificate?

The lease agreement determines if renters must complete an estoppel certificate. If the lease contains a clause requiring tenants to cooperate with estoppel requests, they must comply. However, if the lease does not address estoppel certificates, there is typically no legal obligation for renters to sign one. Even without a requirement, cooperating with a reasonable request can facilitate a smooth transaction and maintain a positive landlord-tenant relationship.

What Happens if the Tenant Doesn’t Sign or Return an Estoppel Certificate?

While not always mandatory, a tenant’s refusal to sign an estoppel certificate can delay a property sale or financing. The landlord may consider the tenant’s silence as agreement with the information in the certificate, or they might have the right to sign on the tenant’s behalf (depending on the lease).

In any case, tenants should communicate and review the certificate before signing to ensure accuracy and avoid complications.

What Is the Time Frame for Returning the Certificate to the Landlord?

The specific timeframe for returning an estoppel certificate to the landlord is usually outlined in the lease agreement itself. It’s typically a short window, often around 15 days, to ensure a smooth transaction.

Should a Tenant Sign an Estoppel Certificate?

Signing an estoppel certificate is generally recommended for tenants. It promotes a smooth transaction and avoids delays for the landlord. Carefully review the certificate to ensure accuracy before signing. If you have any concerns about the information or the lease itself, consult with a lawyer before signing.

FAQs

Who Receives an Estoppel Certificate?

An estoppel certificate is typically requested by the prospective buyer or lender. The landlord prepares this certificate based on details supplied by the current tenant. The certificate serves to confirm key terms of the existing lease agreement.

Is an Estoppel Legally Binding?

Yes, an estoppel certificate holds legal weight and binds both the tenant and landlord regarding the information presented. They cannot subsequently dispute or claim inaccuracies within the estoppel’s stated details.

How Much Does an Estoppel Certificate Cost?

In real estate transactions, the party requesting an estoppel certificate, typically the buyer or lender, bears the cost. While the precise amount varies, the fee generally ranges between $100 and $500.

Who Benefits from an Estoppel Certificate?

An estoppel certificate provides advantages to all parties engaged in a real estate transaction. Landlords ensure a smooth sale and accurate lease information. Buyers gain assurance about the property’s income stream’s reliability. Lenders receive a transparent view of the property’s financial commitments.

What Happens if the Information in an Estoppel Certificate Is Inaccurate?

If the details provided in an estoppel certificate are flawed or misleading, it may spark conflicts and potential lawsuits for the party who signed it. The severity of consequences depends on the magnitude of the error. Therefore, tenants must carefully examine the document and rectify any mistakes prior to endorsing it.