What Is an Estoppel Certificate?
An estoppel certificate (also known as a tenant estoppel) is typically requested by a landlord or property owner when they decide to sell a piece of commercial rental property. The estoppel certificate is completed before the buying and selling of a property in what is called the due diligence phase of an acquisition. Basically, the estoppel certificate is necessary to wholly understand the active and current leases in the building and, ultimately, the financial responsibility the buyer and lender are taking on. Download an estoppel certificate template you can use for commercial or residential properties.
What’s Included in an Estoppel Certificate?
An estoppel certificate includes all the details that outline and define the relationship between the landlord and tenant. While some information and requirements may vary depending on circumstance, here is a list of the most common points included in a tenant estoppel:
- Tenant’s name
- Tenant’s contact information
- Premises they’re occupying
- Lease start and end date
- Total monthly rent and paid security deposit
- Any revisions or edits to the lease
- Overdue rent that is owed and rent paid in advance more than 30 days
- Any concessions the landlord has agreed to
- Any work not completed by the landlord as required in the lease
- Any defaults by either party
Who Provides an Estoppel Certificate?
A landlord will request that a tenant complete an estoppel certificate. As a tenant, it’s your right to request a review by legal counsel or at the very least take time to read through your existing lease. It’s critical to ensure that all information on the estoppel certificate is accurate, and if there are inconsistencies, you need to address them with the landlord before signing. If there are any existing agreements between you and the landlord — via email, casual conversation, phone call, etc — that aren’t included in the lease agreement, these must be corrected or amended in the lease before signing the estoppel agreement or they will be null and void. For example, if your lease states there is a no pet policy but your landlord made an exception for your new kitten, this would need to be added into the lease prior to signing the tenant estoppel.
When Is an Estoppel Certificate Required?
Tenants are required to cooperate with the request for an estoppel certificate if this is included in their lease agreement. If tenants don’t cooperate, they can find themselves in default of their lease. The types of properties that require estoppel certificates are commercial real estate and multifamily residential.
Commercial Real Estate Properties
Commercial real estate leases are a greater liability for landlords and owners because rent is typically much higher. Not knowing what a tenant’s understanding is of their lease could result in some big surprises for a buyer. Most standard commercial leases will include a provision requiring a tenant to complete and return an estoppel certificate upon request, typically within a few days.
Multifamily Residential Properties
With multifamily properties, the number of tenants varies greatly. Potential buyers purchasing a building with hundreds of tenants will inherit a lot of leases that could be a huge liability. New owners need to mitigate risk and disputes as well as understand tenant expectations by getting the full picture around security deposits, repairs, upgrades, and more.
What Happens If a Tenant Refuses to Sign an Estoppel Certificate?
If a tenant refuse to sign the agreement, the landlord may reserve the right to sign it for them as their agent. Or the landlord can deem the failure to sign as an admission that the statements within the certificate are true.
In the worst-case scenario, landlords may charge a tenant hefty fees or financial penalties. If the landlord has included language directed at estoppel certificate requests in the lease, it’s in a tenant’s best interest to sign the certificate after reviewing the specific clauses and contingencies.