Let’s say you’re living in your apartment. You pay your rent on time, your landlord is great and responsive and everything is fine. Then, out of the blue, one day you receive an estoppel certificate or estoppel letter. It looks a lot like a legal document and you wonder what it is, what it means and if you’re required to sign it?
What is an estoppel certificate?
“An estoppel certificate is a signed statement usually by a tenant (either residential or commercial) certifying as true particular facts related to the lease,” said Joseph Hernandez, partner and chair of the Florida-based real estate practice group, Weiss Serota Helfman Cole & Bierman.
What do I do if I get an estoppel certificate from my landlord?
An estoppel certificate is usually required of a tenant when the leased property nearly sells.
In some cases, it’s required when property finance occurs. According to Hernandez, “A purchaser of an apartment building with 50 units would want to have the assurance that all tenants are paying their rent, there’s no dispute between the tenant and landlord, no defaults, deposits have been made, etc.”
Do you need to respond and sign an estoppel certificate?
Responding to and signing an estoppel certificate depends on your lease agreement.
“In many cases, the lease agreement requires the tenant to respond and sign an estoppel within a certain number of days if he/she is ever asked to sign a tenant estoppel. As such, it is often mandatory,” said Hernandez.
It doesn’t mean that if your lease does not contain a covenant to sign an estoppel certificate that you’re off the hook or you won’t have to respond to one. If you’re not sure about your obligations, it is important to review the lease or having counsel look at it and determine what the lease requires.
“Even if it is not required under the lease, it is still usually a good idea to cooperate,” Hernandez says. “If there are defaults or other issues that must be disclosed in the estoppel certificate, a tenant may need to seek counsel to assist in responding to such a request. It may be advisable for a tenant to seek legal counsel for assistance with determining what facts are in existence and reviewing the language for the estoppel certificate.”
What does an estoppel letter contain?
If a landlord is selling an apartment building, the purchaser would likely include a provision in the purchase agreement requiring the landlord to provide tenant estoppel certificates from all tenants before closing. The reason is so the buyer can have the assurance that tenants pay rent and there are no default issues.
“The rental income is critical to an owner of an apartment building as it determines the value of the property and it determines if, and how much, financing is available on the property,” added Hernandez.
For this reason, an estoppel certificate usually contains a statement of certain important facts such as the dates the lease began, expiration date, whether rent is up to date, the amount of rent, any options to renew or extend the lease, any subleases and their terms and so on.
The estoppel certificate usually contains language stating that the purchaser/lender is relying upon the tenant’s confirmation of the statements in the certificate.
What happens if I don’t respond to an estoppel certificate?
Tenants rights lawyer Joseph Tobener with California-based Tobener Ravenscroft LLP agrees that tenants must fill out an estoppel document when the lease requires the tenant to do so. What if you don’t respond to an estoppel certificate?
“A tenant with a lease that requires completion of an estoppel would be in breach of lease for failing to complete and return an estoppel,” said Tobener.
That’s not to say you must always respond and sign an estoppel document.
“In certain jurisdictions with rent control, a tenant would not be considered in breach if the tenant did not fill out an estoppel,” Tobener said, “A tenant on an oral lease does not have to complete an estoppel.”
If your lease does need you to complete an estoppel certificate, you will have some days in which you have to return it. However, a tenant does not have to use the form provided. “Instead, a tenant can just submit an unsigned Word document entitled estoppel, answering only those questions that the tenant feels comfortable answering,” Tobener said.
Reasons to complete an estoppel certificate
Is there ever a good reason a tenant will want to complete an estoppel certificate? There are three circumstances in which a tenant would want to cooperate:
- Your lease requires it
- When the tenant wants a new owner to know of any oral agreements the tenant made with the prior landlord such as storage, pets
- If local rent control has special protections for disabled tenants
If a tenant is in a jurisdiction with rent control, it is important to get expert advice before submitting the estoppel.
“An estoppel certificate is a document that allows a new, prospective landlord to learn about a tenancy in advance of purchasing a tenant-occupied building,” said Tobener, “It is also a chance for a tenant to fill in a new landlord on the details of a tenancy.”
To that end, the facts included in the document are important and accuracy is key.
“Any party seeking an estoppel certificate — whether it is a purchaser or lender — must be able to rely on the facts in the estoppel as the basis for its decision of whether to complete the purchase or close the loan,” said Hernandez, “It is important that any tenant asked to complete an estoppel certificate be extremely careful as to the accuracy of included facts because a landlord or purchaser could rely on the representations as true to its detriment and seek legal recourse against the signer if a certified fact turns out to be false or inaccurate.”
Estoppel certificates and your lease
Bottom line, if you receive a request to submit an estoppel certificate or estoppel letter, review your lease agreement. If it’s required, it’s important to complete the certificate in an accurate, timely manner while understanding it’s a binding document.
The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.
Source: rent.com