Monday, March 31, 2014

Estoppel Certificate

What is it ?

 In real estate the term usually means a certificate or form filled out by a tenant and delivered to the landlord (which is then delivered by landlord to a buyer or lender) which confirms and “nails down” certain things about the lease:

                1.            monthly rental amount
                2.            termination date of the lease
                3.            Any extensions granted in the lease ?
                4.            Amount of security deposit held by landlord
                5.            any rental prepaid to landlord ?
                6.            is the landlord in default under the lease ?  if so, how ?
                7.            Does Tenant claim any offsets against the rent owed ?

“Estoppel” is a legal concept by which the written statement cannot later be controverted in court or otherwise.   A buyer is entitled to rely on an estoppel certificate, but be careful that it is not too old.  One should also make sure an estoppel certificate is signed by the true tenant, and not the landlord as the tenant’s “attorney in fact,” which is permitted by some leases.

Estoppel certificates are not required in the basic TREC form.  They are commonly called for in commercial contracts.  Be sure to obtain attorney help if modifying the TREC form for this. Just calling for the seller to deliver an estoppel certificate, without a specific form attached, or standards for the certificate, will lead to problems.

Estoppel certificates are a good due diligence tool if buying income producing property – but it is best to require their delivery during option period.