Tenant Estoppel Certificates Explained
Tenant Estoppels: How real estate sellers communicate tenant terms, status, payments, and crucial details to contracted buyers
Ensuring transparency and clarity regarding the rights and obligations of tenants is essential when tenants will remain in place through the purchase and sale of the property from one landlord/owner to the next. Tenant estoppel certificates play a crucial role in this process, serving as vital documents that verify the current status of business arrangements between tenants and landlords.
What is estoppel?
“Estoppel” is a legal principle that prohibits a party from denying or alleging a certain fact that is the opposite of what they have previously done or said. In effect, parties can be “estopped” from changing their statements or their position.
The importance of estoppel certificates in CRE
Tenant estoppel certificates serve as critical documents in commercial real estate transactions, providing essential information about the lease agreement between a tenant and a landlord. These certificates help in verifying crucial details such as the lease term, rental amount, existing defaults, and any other provisions that may impact the property’s value or the transaction itself.
Can estoppel certificates be used in residential real estate?
While it is less common than in commercial transactions, estoppel certificates can also be used in residential real estate sales. The best use of tenant estoppel certificates in residential transactions might be in the purchase and sale of multiple residential properties together as a portfolio or package deal; ensuring that each tenant understands their contractual position and the landlord/seller has truthfully disclosed information about each property.
Key Aspects of Tenant Estoppel Certificates
- Initiating the process. The landlord, seller, or prospective buyer is usually the party who initiates the request for the tenant to complete an estoppel certificate. The request is made to ensure that the information provided by the tenant matches the terms of the written lease agreement.
- Obligation. The tenant is typically obligated by a commercial lease term to complete the requested estoppel certificate information. The type of information requested usually includes the lease term, rent payments, security deposits, existing defaults, and any other current issues.
- Legal implications. Tenant estoppel certificates carry significant legal implications. By signing the certificate, the tenant affirms the accuracy of the information provided and can be held liable for any discrepancies or misrepresentations.
- Timing. Because a commercial real estate transaction will probably use a term that states “time is of the essence,” the seller/landlord will likely place the tenant on a tight timeline for completing a tenant estoppel certificate to keep the transaction moving on schedule. Failure to provide the certificate in a timely manner could delay or jeopardize the transaction.
- Confidentiality. Tenant estoppel certificates are typically treated as confidential documents. Landlords, sellers, and prospective buyers are expected to use the estoppel information solely for the purpose of evaluating the property and completing the transaction.
Can you negotiate on a tenant estoppel certificate?
It is not very common to negotiate a tenant estoppel certificate because the information often requested is so standard. However, one way to ensure the certificate will include the correct information for the subject property is to attach a sample certificate as an exhibit to the commercial lease.
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