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What Is an Estoppel Certificate and Do You Need One?

As a real estate investor, you have probably heard about getting an estoppel certificate from tenants before you buy an income property. But what is an estoppel certificate, and is it important to have one? Here are the details you need to know.
As a real estate investor, you have probably heard about getting an estoppel certificate from tenants before you buy an income property. But what is an estoppel certificate, and is it important to have one? Here are the details you need to know.

As an investor, you want to be sure that a property you buy is exactly what you were told it was. If you’re looking at a rental property with tenants, you can ask the landlord what the lease is like and what rent is.

However, the person who can give you the real truth about the situation is the tenant themselves. When you can get them to attest to the rental situation, it helps prevent poor investments.

If you’re considering buying an investment property, you need an experienced realtor who can help you assess the market and find the right property. If you’d like to connect with a high-quality agent with experience in investments, contact Clever today.

What Is an Estoppel Certificate?

An estoppel certificate is a signed document that lists the details of a rental situation. The certified statement verifies the status, terms, and conditions of the current lease.

An estoppel avoids having the landlord or tenant tell you one story only to change it later. It’s a vital part of the due diligence when you’re buying an income property, and it’s often required to obtain a mortgage on a rental property as well.

Estoppels are generally used when buying or refinancing commercial real estate. In residential situations, the signed leases often give you the details you need, along with proof of the rent or bank deposits. However, don’t overlook it even during a residential purchase. It helps you avoid surprises.

Do You Need a Tenant Estoppel Certificate?

An investor buying a rental property absolutely needs a tenant estoppel. As much as you want to trust the people you deal with, there are no handshake deals anymore. You need everything documented and in writing.

The tenant estoppel provides proof of cash flow, which is the central point of any rental property purchase. It also stops the tenant from taking a different position later in the transaction.

More importantly, it helps you not be surprised by details that come up after the sale. If you’re buying a residential property with tenants, you don’t want to be surprised by pets, parking arrangements, misstatements from a property management firm, or other details.

For a commercial property, it’s even more important because it can be so difficult to find tenants, and businesses usually sign multi-year leases. Knowing that your nearing the end of the lease for an anchor store puts you in an entirely different risk category than having seven years left.

What’s Included in the Certificate?

What exactly does the estoppel certificate include? There are specific details that need to be covered in the document.

First, the date the lease started should be listed, along with when it expires. It will also show how far up the rent is paid, and whether there are any defaults by either the landlord or tenant. The estoppel verifies that the lease has not been modified and is in full effect.

If there are any modifications or amendments in place on the lease, they will also be listed on the certificate. So will options to buy the leased property, and verification that the landlord has completed all improvements and maintenance obligations.

Sometimes the estoppel certificate will also include a copy of the lease, security deposit, parking and storage arrangements, and other details of the property.

Does a Tenant Have to Sign an Estoppel?

Hopefully, both commercial and residential tenants will have no problem verifying the terms of their lease. Unfortunately, there’s a fair amount of advice online that tries to warn people that signing an estoppel can limit their rights.

Usually, the requirement to sign an estoppel, if requested, is listed in the lease agreement. That can help avoid disagreements and keep everything moving smoothly.

If tenants have concerns about signing the certificate, assure them that their rights are not in jeopardy. They need to review and sign the certificate in a timely manner and let you know right away if there are any errors.

Also let them know that if any details they have agreed to with the landlord are not on the estoppel, they should write a letter including those arrangements and turn it in with the estoppel.

A Qualified Realtor Can Help You Find the Right Income Property

If you’re looking to purchase an income property, you need an agent who can help you find exactly what you need. Not only can an agent help you find properties that have a great income at a great price, they can help walk you through the purchase process as well.

It’s vital to have an experienced agent who can help you understand the risks and rewards of various properties. They can help you understand the recommended paperwork, including estoppel certificates, and give advice on how to get them completed.

When you work with an experienced Clever Partner Agent, you can get the assistance you need to get started in investing or purchase your next property.

Contact Clever for more information today!

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Luke Babich

Luke Babich is the co-founder and Chief Strategy Officer of Clever Real Estate, the free online service that connects you with top agents to save money on commission. He's an active real estate investor and licensed agent in St. Louis, with 22 units currently. Luke graduated from Stanford University and subsequently ran a historic data-driven campaign for University City City Council. Luke's writing has been featured in Homeland Security Today, Mashvisor, Payments Journal, and Bigger Pockets.

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