A tenant estoppel certificate is a legal document that tenants may be asked to sign when living in a rental property. It details the rights and privileges of the tenants so that any potential buyers or lenders of the property in the future know what agreements have been made with the property owner. In other words, it helps to give prospective buyers insight into the current tenancy agreement if they were to purchase the residential or commercial property while helping tenants retain their legal rights.
In this article, we look at the legal estoppel certificate definition and delve into what an estoppel agreement is. We also provide information regarding when such a legal document is required, the effect of the tenant estoppel agreement, and examples.
What is a Tenant Estoppel Agreement?
The dictionary defines estoppel as “the principle which precludes a person from asserting something contrary to what is implied by a previous action or statement of that person by a previous pertinent judicial determination. Therefore, the estoppel certificate definition refers to a legal document that details the previous agreement to another party.
A tenant estoppel certificate (also known as a “tenant estoppel,” “estoppel letter,” or “estoppel agreement”) is used in real estate as a requirement of the lease when the landlord of the property intends to make a transaction with a third party. For example, if the landlord is either planning on selling or financing the property in which a tenant currently lives, a tenant estoppel certificate is required. Nearly all commercial real estate property, including shopping centers and factories, have an estoppel agreement in place. The tenant will sign the agreement detailing all aspects of their lease, as well as other arrangements. This includes elements such as:
· Dates: The estoppel agreement will state when the lease starts and when it terminates. It will also state any renewals or extensions of the lease, at what date these occurred, and when the next renewal is due.
· Rental Amounts: Within the tenant estoppel document, the amount of rent paid each month will be detailed. It will also disclose overdue payments, if any, and how much money is being held in the form of a security deposit.
· Contact Information: The estoppel will state who the tenants are and provide all parties’ contact information, including residential addresses, telephone numbers, and email addresses.
· Full Force and Effect: If any modifications were previously made to the initial tenancy agreement, these will also be noted in the estoppel. In this case, there would also be a statement that the lease is in full force and effect.
What is the Purpose of an Estoppel Certificate?
An estoppel certificate serves to detail the tenant’s rights and privileges that were agreed to in the tenancy document to a potential buyer or lender of a real estate property. It confirms that a lease exists, that there are no defaults, and that the agreed rent will be paid up to the expiration date. By doing so, this serves three main purposes:
(1) Provides the prospective buyer or financial lender enough detail about the current situation to decide whether the transaction will be beneficial to them.
(2) Offers assurance to the purchaser or lender that the tenant will not make appeals and demands that are conflicting with the statements in the estoppel certificate at a later date.
(3) Protects the rights and privileges of the tenant, particularly in cases where verbal agreements were made directly with the landlord and not included in the lease.
When is an Estoppel Certificate Required to be Signed by a Tenant?
A tenant will be required to sign an estoppel certificate if there is a statement in the original lease saying that they need to do so. Tenants must legally sign the estoppel certificate in these cases. The estoppel clause will usually state the deadline by which the tenant must sign the document.. Since a lease is a legal document, failing to adhere to this provision within the designated time frame is considereda breach of contract and can result in eviction from the premises. Many lease agreements in the United States will have this provision included, so always check upfront to avoid trouble. It is within the tenants’ best interests to ensure they complete the document on time and return it to the landlord.
When Should a Tenant Choose to Sign an Estoppel Certificate?
In many cases, a tenant may wish to complete an estoppel certificate even if it is not required, as it can be beneficial to them. Situations where a tenant may wish to do this include when verbal agreements were made outside of the scope of the initial lease. Some examples include:
- The landlord allowing the tenant to keep a pet within the property
- Agreements over utility bills being included in the rent payments
- The right to sublet any of the rooms without prior permission
- Any interest that is incurred on the security deposit being held by the landlord
- Use of garages, storage spaces, and parking sports for free
- Permission to have roommates reside with the tenant
- Exclusive use of specific areas, such as a backyard
- Agreements over building maintenance in exchange for reduced rent
All of the above verbal agreements would need to be put in writing as part of the estoppel agreement. Therefore, if and when the property were to move hands to a third party, the tenant would still legally have these rights. It helps to preserve these agreements despite a change of property ownership. However, where a tenant estoppel document has not been signed, the tenant could lose these rights and privileges under new management.
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What is the Effect of an Estoppel Agreement?
The main effect of an estoppel agreement is to bind both the landlord and the tenant to all statements and estoppel clauses detailed in the document. However, its contents are legally deemed to be true even if they are indeed erroneous, binding both parties to an agreement that is different from the one initially intended. Therefore, mistakes can have major and unintended legal implications. In cases where mistakes are made, they usually get brought to the attention of the courts due to a disparity between the lease and the estoppel.
For better understanding, let’s look at an example. The lease states that the tenant is required to give six months’ notice if they wish to extend their lease, whereas the estoppel certificate may incorrectly state that twelve months’ notice is required. The tenant gives their landlord eight months’ notice, but the landlord raises a dispute because this falls four months short of what is stated in the estoppel. The tenant then refuses to vacate the property per the terms of the lease, so the landlord files an eviction lawsuit. At this stage, the disagreement is brought to the attention of the courts, which will look over both written documents. Since the tenant is required to give twelve months’ notice according to the tenant estoppel certificate, this is what would be honored, despite the fact that it was incorrectly written in the estoppel agreement initially.
This is just a fictional example, but many real-world cases also prove the enforceability of estoppel certificates in the United States. A similar situation occurred in California in the year 2000 in the Plaza Freeway Ltd. Partnership v. First Mountain Bank case. In this case, the tenant wanted to extend the commercial property lease, which, per the lease, required twelve months’ notice. However, the estoppel agreement had a lease expiration date which meant the notice provided by the tenant was not enough. The courts ruled in favor of the landlord as per Section 622 of the California Evidence Code, which states that “the facts recited in a written instrument are conclusively presumed to be true as between the parties thereto, or their successors in interest.” The California appellate court went on to explain their decision for the defendant, stating that, “A contrary conclusion would defeat the purpose behind the widespread practice of using estoppel certificates.”
What Are The Risks of Signing an Estoppel Certificate?
As a tenant, there are no real risks of signing a tenant estoppel agreement as it works to protect their privileges and rights when the property they are renting is refinanced or sold to a new buyer. However, the document must be completed with care to ensure that issues don’t arise. For example, all amendments and side agreements to the lease must be detailed clearly to avoid them from being removed at a later date. Legally, the tenant wouldn’t have the right to these privileges if they are not detailed in the document. This missing information in the agreement could result in a tenant losing some of their privileges or being prematurely evicted from the property.
Moreover, an estoppel agreement is only risk-free as long as the information within it is accurate and correct. If a tenant purposefully states inaccurate and erroneous information that is inconsistent with the terms of the lease, they could be sued. Therefore, any tenant that is required or chooses to complete an estoppel certificate must do so with utmost accuracy and care. Cross-check any information that is already detailed in the lease if it will also be contained within the estoppel agreement, as this can lead to ambiguity if filled out incorrectly. Additionally, list all relevant documents, such as the lease and its amendments to ensure no information is excluded.
On the surface, an estoppel real estate document seems like a relatively harmless legal certificate that details the agreements between a tenant and a landlord. However, it serves an important function when third parties get involved, such as when the property is changing hands or being financed. It provides the prospective buyer or lender with all relevant information and helps protect the tenants’ rights.
However, such certificates can present risks to the tenant or landlord if they are completed incorrectly. The document is legally binding and overrides other written agreements, even if it contains erroneous information. For this reason, tenants and landlords must ensure these documents are always executed with care to preserve both parties’ rights and responsibilities.