Buying A Rental Property with Current Tenants? Have You Heard of a Tenant Estoppel Certificate, and Why Do You Need One?
Article by – Vanessa Martin
Introduction
Simply put an estoppel certificate for landlords, often referred to as a “tenant estoppel certificate,” is a legal document used in commercial real estate leasing situations. It is typically provided to a tenant by the landlord or their representative, and it serves several important purposes.
Verification of Lease Terms
An estoppel certificate is used to verify the key terms of a commercial lease agreement between the tenant and the landlord. It includes details such as the lease start date, lease expiration date, rental rate, security deposit amount, and any other significant lease provisions.
Financial Standing Confirmation
The certificate often requires the tenant to confirm that they are current on their rent payments and that there are no outstanding rent arrears or disputes. This helps the landlord verify the tenant’s financial standing and adherence to the lease terms. If there have been any modifications to the lease agreement, the estoppel certificate will ask the tenant to acknowledge and confirm these changes. This ensures that both parties are on the same page regarding the lease’s current terms.
Lease Term and Renewal Options
The certificate will specify the lease’s remaining term, which is important for both the tenant and potential buyers or lenders if the property is being sold or refinanced. It clarifies whether there are any renewal options and, if so, under what conditions they can be exercised.
Property Condition and Defaults
The tenant may be asked to confirm the condition of the leased premises, acknowledging whether there are any outstanding maintenance issues, damage, or repairs required. This information can be valuable for the landlord when planning property maintenance or renovations. It often requires the tenant to acknowledge any defaults or breaches of the lease agreement, both by the landlord and themselves. It may also specify any pending legal actions or disputes related to the lease.
Third-Party Utility
In many cases, the estoppel certificate is provided to third parties, such as lenders, investors, or prospective buyers of the property. It serves as a reliable source of information about the lease’s status and the tenant’s obligations.
Conclusion
As a buyer, obtaining an estoppel certificate can help prevent future disputes over lease terms or financial obligations. It provides a documented record of the tenant’s understanding and agreement with the current lease terms as well as an assessment of the financial stability of the property and the reliability of rental income.
In summary, an estoppel certificate can be a useful tool to make sure you are buying a solid rental property, protecting your investment, and giving the lender a strong financial history of property income.
Please feel free to reach out to me at vanessa@lendingig.com or call me at 813-666-0387. We would be happy to offer a free consultation.
Vanessa Martin
NMLS #2348162
Lending Operations Manager
Lending GIG LLC NMLS #2383223
www.lendinggig.com