Estoppel Certificate: A Full Guide
What You Should Know
- An Estoppel certificate is a binding agreement between a landlord and a tenant that outlines the current conditions of the rental agreement.
- This certificate contains details of the lease, the rights of the tenants, and other important details about the current tenants and the tenancy agreement.
- Landlords request a tenant sign an estoppel certificate when selling a house, getting a loan on the property, or refinancing their mortgage.
- Tenants should always carefully read and compare the certificate with their lease to ensure no errors or omissions.
What Is an Estoppel Certificate?
An estoppel certificate is a signed statement that verifies the terms of the lease agreement and provides a snapshot of the current tenancy status. Your landlord might ask you to sign an estoppel certificate to prove that the lease exists, the conditions, and the main clauses of your lease. It is used by your landlord to show potential mortgage lenders or property buyers that the property is occupied and provides expected cash flow.
In real estate law, Estoppel stops a party from claiming something that contradicts the other statement made by the party. In the case of an estoppel certificate, it prevents the tenant and landlord from claiming a different set of facts from what is written in the certificate. This makes an estoppel certificate a binding document that can be used to confirm the terms of a lease.
What Is in an Estoppel Certificate?
A tenant estoppel certificate contains the main clauses of your original lease agreement, modifications, and outstanding claims that might have been made since the original lease was signed. The certificate does not replace your lease agreement, but it may prevent you from making a claim that contradicts the certificate. The following information can be found in an estoppel certificate:
- Monthly Rent Amount.
- All Rent Amounts Paid to a Certain Date.
- Security Deposit Amount.
- Lease Start and End Dates.
- Amendments to the Lease.
- Defaults or Claims.
The estoppel certificate must include outstanding obligations or claims against the landlord or the tenant. For example, if the stove is broken and your landlord has promised to replace it, the certificate must include a statement by a party expecting the replacement. You may lose the right to the claims if you do not include them in the certificate.
Should a Tenant Sign an Estoppel Certificate?
You should sign the certificate if it is accurate and does not omit important information about your tenancy. You should always look into the certificate before signing it. Your lease agreement may have a clause that requires you to sign an estoppel certificate upon request. Refusing an estoppel certificate request may breach the terms of your lease agreement, resulting in default or financial penalties.
There is no reason to avoid signing an estoppel certificate if it reflects accurate information. An accurate estoppel agreement can protect you and your landlord in a dispute, but you should not sign it blindly. You should always compare the certificate with your lease agreement to see if it contains accurate information and covers all important aspects of your lease. If you notice any discrepancies, contact your landlord and discuss the required changes before signing the certificate.
An estoppel certificate benefits you and your landlord. Not signing it means that you might lose some protection of your rights and claims if a dispute arises between you and your landlord. In addition, not responding to a request to sign the certificate may allow the landlord to sign the certificate on your behalf, as a non-reply situation.
When Should a Tenant Sign an Estoppel Certificate?
A tenant should sign and return the certificate on or before the date requested by the landlord. Landlords usually give 15 or 30 days to sign and return the certificate. You should check the certificate as soon as you receive it to have enough time to discuss and make any necessary changes. You should not sign an estoppel certificate at the last minute because you may need time to address discrepancies between the certificate and the lease agreement.
What Is the Purpose of an Estoppel Certificate?
The main goal of an estoppel certificate is to preserve the terms of your lease, along with any verbal agreements you have had with your landlord. For example, if your lease agreement does not have a termination date, an estoppel certificate can help you and your landlord to agree on a termination date. This prevents ambiguity and disputes in the future. The U.S. House of Representatives provides guidance on how to deal with estoppel certificates.
Landlords usually ask tenants to sign an estoppel certificate before selling the property. While the property is sold to a new owner, your existing lease agreement still stands. Accurate lease terms and modifications outlined in an estoppel agreement provide the buyer with a clear picture of the tenancy status and cash flow the property makes.
Some lenders may also require an estoppel certificate when a landlord wants to refinance their property or get a new loan against the property. If the landlord uses income from rental property to apply for a loan, the lender may require proof of income. In this case, the estoppel certificate can help the lender to decide whether they are willing to provide a loan to your landlord.
Estoppel Certificates in Real Estate
Commercial Real Estate
Estoppel certificates are used for both residential and commercial properties. A commercial real estate owner might ask their commercial tenants to sign an estoppel certificate to set in stone the terms of their leases. This certificate makes it easier to apply for a commercial mortgage or negotiate with investors looking to purchase the property.
If your landlord is applying for a loan, their lender may request estoppel certificates from current tenants. Estoppel certificates can act as proof of cash flow since it verifies that a tenant is current on their lease payments.
This type of properties may be difficult to manage because different families live close to each other. Multifamily property owners usually invoke estoppel certificates to clarify certain rules and resolve conflicts between different tenants. The landlords of multifamily properties may still use the certificate to apply for loans and look for buyers.
Usually, single-family property owners do not use estoppel certificates unless they choose to sell their homes. Most issues can usually be resolved verbally between the landlord and the tenant. In rare cases, single-family property owners may require the certificate to show to a potential buyer. The landlords of single-family properties usually do not get large loans against their property, so they usually do not need the certificate.