If you’ve just checked your mail and received an estoppel certificate, it may seem convoluted and confusing. It can be tempting to recycle the certificate or simply sign it without knowing the full conditions of the agreement. Yet estoppel certificates are important legal documents that should be reviewed carefully. When disregarded, risks can emerge for you, your landlord, or a prospective buyer of the building you are renting in. It’s important to know what an estoppel certificate is, if you need to sign it, and how to protect your rights as a tenant.
What is an estoppel certificate?
An estoppel certificate is a legal document signed by a tenant that confirms the current terms of a lease. The Black Law Dictionary defines it as a “written, signed stipulation of previously established facts preventing subsequent contradiction or recant of these facts.” This certificate is most commonly used when the building is being sold or refinanced. It works to protect both the tenant and buyer of a property. The buyer or lender will perform due diligence and ensure that the tenants of the building are in good standing. They need to make sure there are no unwritten agreements between the tenants and landlord regarding rent, amenities, or access.
What is the purpose of an estoppel certificate?
The estoppel certificate has multiple functions. It can clarify and confirm if the rent has been fully paid by the tenant or if the tenant has any claims against the landlord. It can also outline unwritten agreements between tenants and the landlord to ensure that these arrangements are respected in the future. In some cases, estoppel certificates can also be required if you are subletting your apartment.
What does an estoppel certificate contain?
Common things included in an estoppel certificate are:
- When the lease began, when it ends, and if it has been renewed
- The amount of rent and if there are any late or overdue payments
- Contact information for both the landlord and the tenants
- A statement to verify that the lease is in “full force and effect,” meaning that no modifications have been made.
- Any unwritten modifications to the lease since it was initially signed
If you have access to storage, pet allowance, parking, or any other amenity not included in the lease, it should be included in the estoppel certificate. This will make sure your arrangement remains in effect.
What kinds of properties require an estoppel certificate?
There are a few types of properties where estoppel certificates can be useful or required.
- If you live in an apartment complex, you most likely have an estoppel certificate clause in your lease agreement. This protects all parties involved in the case of refinancing or a sale of the property. Additionally, if you are legally allowed a subletter, you may be required to have the subletter sign an certificate. This ensures that they understand and agree to all the terms of the living arrangement. Be sure to check the terms of your lease for clarification.
- The sale of commercial property also frequently requires an estoppel certificate. The rent is usually very high on these properties. When a landlord sells or refinances offices or businesses, the new buyer or lender will often require the certificate to protect themselves. In some instances, the terms of renewing or extending the lease on a commercial property can be unclear, and the certificate can override the original terms of the lease. This makes it even more crucial for both parties to understand the terms of the certificate and if they differ from the original lease.
- Single-family homeowners may also be required to sign an estoppel certificate. It’s less common, but if your home is in escrow, a homeowner’s association (if you have one) can require an certificate.
Why is the estoppel certificate important?
The estoppel certificate protects the tenant, the landlord, and the potential buyer of the rental property. A buyer needs to confirm the leases are in full effect and in good standing before their purchase. This will protect them from financial harm. If there are outstanding payments on a lease, the buyer needs to be made aware. The estoppel certificate can also clarify any timelines for extending or renewing a lease. If there are any discrepancies regarding the amount of rent, the certificate can also protect the new buyer from being placed at financial risk. For example, if the building changes ownership (without the signing of an estoppel certificate), a tenant could claim to only be paying $1000 in rent when the lease says they pay $1275, financially misleading the new buyer.
On the converse, tenants are also protected by estoppel certificates, especially when they have agreements with the landlord that aren’t outlined in the lease. For example, if the landlord had promised to make repairs to the apartment, the new buyer should be made aware of this so that they can follow through on the repair or negotiate the terms of the agreement. If you have a lease that doesn’t allow for pets, but you have an arrangement with your landlord that allows for your pet, this should be included in the certificate to ensure you can keep your pet if the building changes ownership.
What to do when you receive an estoppel certificate?
There may be a small window of time for you to complete the estoppel certificate. Though time is of the essence, you shouldn’t sign the estoppel certificate before considering a few things. You should review your lease to check if there is a provision mandating you to sign an estoppel certificate. If you are mandated, check to see what time frame you are required to sign it and send it back. Even if there is no clause in the lease about signing the certificate, check local and state laws to see if you are mandated to sign the certificate. It is imperative that you sign if you are required by local or state law. Tenants who don’t sign the certificate in a timely manner are violating their lease and can face eviction.
You should still consider the benefits of signing regardless to ensure your rights are protected even if you aren’t mandated. If you choose to sign the estoppel certificate, you should carefully compare the certificate and your lease to ensure the estoppel certificate reflects all the aspects of your living situation. There may be differences between what is written in the lease and the agreement you currently have with your landlord. This can be anything from a price difference in rent to your usage of a storage space or elevator.
What if something is missing in the estoppel certificate?
Hold off on signing the estoppel certificate and mark any inconsistencies between your lease and the certificate and speak to your landlord about it. It’s essential to make sure that any written or verbal agreements are accurately depicted in the estoppel agreement. This will ensure that your rights as a tenant are protected once the building changes ownership. You may need to consult a real estate lawyer if there is a disagreement about the inconsistencies. Once all inconsistencies are addressed, then you can sign. Just note that once signed, the estoppel certificate becomes a legally binding agreement which can be used in court as evidence should any disputes arise.
What if I refuse or forget to sign the estoppel certificate?
Your landlord may reserve the right to sign the estoppel certificate on your behalf as your representative. For most landlords, refusing or forgetting to sign the certificate means that you’ve forfeit your right to review and are by default confirming that the information in the estoppel certificate is all accurate. Therefore, it’s best to review the estoppel certificate then sign once you know everything in it is accurate.
Proceed with caution!
Though estoppel certificates may seem like a headache, they are an important legal document to protect all parties involved. Signing the estoppel certificate will not place you at any risk as long as the certificate and the terms of your lease match. You should ensure that your unwritten agreements are honored in the certificate if there is a mismatch.
Not signing the document when you are obligated to could result in your eviction in a worst case scenario. You could be at risk if an unwritten agreement is left out of the estoppel certificate. For example, you don’t want to end up in a position where you have to give up a pet because the original lease did not allow for pets. Likewise, the buyer of the building doesn’t want to purchase the property without understanding the terms of the leases. It’s important for everyone to be on the same page so as not to cause any lasting problems. It is always a good idea to seek legal counsel to ensure the protection of your rights as a tenant.
