A document frequently used in mortgage and real estate due diligence is an estoppel certificate (also known as an estoppel letter). It is a form that tenants typically fill out or at least sign when their landlord proposes to do business with a third party. A purchaser planning to buy a tenant-occupied property or a mortgage lender looking to collateralise one will frequently want to confirm specific claims made by the landlord.
The tenant's affirmation of the lease terms, including the amount of rent due, the size of the security deposit, and the date the lease expires, is provided by an estoppel certificate. The tenant may also have the chance to explain any potential claims they may have against the landlord through the estoppel certificate, which could have an impact on whether a buyer or lender decides to proceed with the proposed transaction.
Depending on the circumstances, some lease agreements allow the landlord to complete the estoppel certificate instead of the tenant, or they require the tenant to achieve such a certificate.
Why Do Landlords Need Estoppel Certificates?
When a multifamily property owner wants to sell or refinance the property, they frequently ask for an estoppel certificate. It is a crucial component of a buyer's or lender's due diligence.
If a landlord wants to sell the property, they might need to ask the tenants for an estoppel certificate. The purchaser must do their due diligence and understand the leases they will inherit. Before funding the deal, the lender will probably want to look over the tenant's estoppel certificates.
It might be necessary for the investor to obtain estoppel certificates from the tenants if they are refinancing the property. The lender uses these to confirm a few things:
That the rent is being paid as the landlord claims.
That the landlord's statements are reflected in the lease terms.
Any active disputes with tenants won't significantly impact the cash flow required to make loan payments.
What Happens If Tenants Don't Comply With Clauses Of Estoppel Certificate?
Estoppel clauses are frequently incorporated into rental agreements, making it possible for a tenant who refuses to return the contract to violate the terms of the lease they signed. It is a legal document, and as such, the tenant is required by law to return it by the expiration date specified by the landlord.
Depending on the terms of their lease agreement, a tenant may or may not be required to assist with their landlord's estoppel certificate requests. The tenant must comply with the landlord's request if the lease contains an estoppel clause. They risk being in breach of their lease if they don't cooperate.
Although you could face the total weight of the law, landlords don't often resort to such extreme measures. If you're uneasy about estoppel certificates, get legal counsel. Having an attorney-client relationship, whether you are a landlord or a tenant, can significantly ease your concerns about this type of signed statement.
What's In A Estoppel Certificate?
Depending on the type of property the tenants are occupying, tenant estoppel certificates will differ, and they will frequently be more specific when addressing the terms of a commercial lease. On an estoppel certificate form, the following sections are commonly found:
Name of the tenant
Phone number of the tenant.
The location they are in.
Start of the lease.
Term of the lease.
Monthly rent payment.
held as a secured deposit in this amount.
The lease's modifications of any kind.
Rent that has been past due.
any rent that is paid more than 30 days in advance.
Any changes that the landlord has consented to.
Anything the landlord fails to do that is specified in the lease.
any breaches by either the Landlord or the tenant.
Any excuse the tenant cites for failing to follow the lease terms.