Estoppel Certificates: How the Real Estate Document Works

A tenant estoppel certificate is a binding document that clarifies the current status and terms of the lease agreement between a landlord and a tenant for a prospective purchaser of property. Another name for a tenant estoppel certificate is a tenant estoppel letter. When a landlord—as a property owner—plans to sell their property to a prospective buyer or refinance with a lender, they issue this type of real estate <a href='https://masterclass.com/articles/robin-robertss-tips-for-effective-communication' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://masterclass.com/articles/robin-robertss-tips-for-effective-communication","linkCopy":"communication","category":"automated-link"}' automatic='true'>communication to their tenants. An estoppel certificate can offset concerns for the potential new owner, mortgage holder, or title company as to whether cash flow is secure. It does this by showing the prospective buyer that the current owner is on the same page as their tenants regarding monthly rent payments, conditions for renewals and defaults, and any other key provisions of the lease. Rental agreements often include an estoppel agreement, so a tenant who refuses to return the agreement can be in breach of the lease terms they signed. Since it’s a legal document, a tenant must return it by the expiration date their landlord provides, a deadline enforceable by law. Although you could be met with the full force of the law, landlords rarely take such drastic measures. Seek out legal advice if you feel uncomfortable about estoppel certificates. An attorney-client relationship can do a lot to put your mind at ease about this sort of signed statement, whether you are a landlord or a tenant. Since real estate transactions and transfers of ownership are fairly common, any leased premises should have an estoppel clause in its contract. These are three places you may encounter agreements in action: 1. __Apartment complexes__: If you live in or own an apartment complex, there’s likely an estoppel agreement in your lease contract. These agreements are part of due diligence for landlords, tenants, and potential property buyers alike. 2. __Commercial property__: Estoppel agreements are common in the world of commercial leases. Landlords often sell or refinance office and business spaces, meaning commercial real estate leases must include estoppel agreements for new potential buyers of their rental property. 3. __Single-family homes__: You’re less likely to deal with estoppel letters if you’re purchasing a single-family home or condominium since you’ll be the owner instead of a landlord. However, a [homeowner association](https://www.masterclass.com/articles/homeowners-association-guide) (HOA) might ask a new homebuyer to sign an estoppel agreement while the home is in escrow. Estoppel certificates assure multiple parties—tenants, landlords, and prospective buyers—that everyone is on the same page when it comes to the current status of a lease. Here are four specific things you might see on an estoppel letter: 1. __Amendments to your lease terms__: An estoppel agreement is the most up-to-date document about a lease contract a new buyer can read, as it will include any amendments to the original terms. 2. __Amount of rent paid__: You’ll almost invariably see all prepaid rent as well as the outstanding amount of rent owed on an estoppel agreement. The same goes for the initial security deposit. 3. __Special assessments__: Local infrastructure sees a specific kind of property tax, called [special assessments](https://www.masterclass.com/articles/special-assessment-explained), levied against it. If potential buyers must pay any special assessments once they assume ownership, they will want to know this in advance. 4. __Sublet information__: If a tenant is subletting their apartment, an estoppel agreement includes this information so that the new owner of the building is aware of all extenuating circumstances. All you need is a [MasterClass Annual Membership](https://www.masterclass.com) and our exclusive video lessons from prolific entrepreneur Robert Reffkin, the founder and CEO of the real estate technology company Compass. With Robert’s help, you’ll learn all about the intricacies of buying a home, from securing a mortgage to hiring an agent to tips for putting your own place on the market. An estoppel certificate can help inform potential property buyers that the current landlord they plan to purchase from is of the same mind as the tenants when it comes to the lease terms. Learn why estoppel certificates are such important elements of real estate law.