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What Is an Estoppel Certificate in Real Estate?

Has your landlord given you an estoppel certificate to sign? If you’re unfamiliar with what this certificate means, your role as a tenant can be confusing. As such, it’s important to know what it is, what it means, and when you might need to sign one. In today’s article, we’ll go over everything you need to know. 

Contents of This Article: 

What Is an Estoppel Certificate in Real Estate?

An estoppel certificate is a legal document used in real estate transactions. Usually, when a landlord or owner of a multi-unit property sells or refinances the property, an estoppel certificate is requested. Then, the landlord provides their tenant(s) with an estoppel certificate to sign to indicate the present status of their lease. 

A certificate gives a third party more information about a property. For instance, a potential buyer or lender may request one to confirm the monthly rent and security deposit amount. After all, buyers will want to understand the leases they are potentially taking over. 

Additionally, lenders might need this information for their records as well. For instance, if an owner is refinancing a property, a lender may need to confirm that the tenants are paying the landlord the amount the landlord claims to receive and that there are no pending tenant disputes. 

It’s important for property owners, tenants, and rental property managers in Washington, DC, to understand these certificates, when they may need to be signed, and each party’s obligations. 

What Does an Estoppel Certificate Include?

When a landlord requests an estoppel certificate, you’ll see that you must provide a ton of information about the property. For instance, most letters request information such as:

  • Lease agreement start and end dates
  • Tenant’s personal information, including their name and contact details
  • Details about the property
  • Monthly rent amount
  • Outstanding rent owed to the landlord
  • Prepaid rent, if any
  • Unfulfilled landlord obligated required by the lease
  • Confirmation of the lease’s original terms or summary of any modifications
  • Security deposit information
  • Last date rent was paid to the landlord
  • Verification of absence of defaults or disclosure of any existing defaults by either party

Properties That Require an Estoppel Certificate?

Three property types typically require estoppel certificates: multi-family, commercial, and some residential properties. Let’s review why estoppel certificates may be required for each of these property types. 

  1. Multi-Family Real Estate
  2. Commercial Real Estate
  3. Residential Real Estate

Multi-Family Real Estate

Since multi-family properties have multiple tenants, several lease agreements are involved. As such, it’s important for potential property buyers to fully understand the details of each lease agreement or any disagreements between the current property owner and tenants. For instance, if current tenants are waiting for repairs or maintenance promises from the current landlord, the new owner will need to know about it. Otherwise, they may unintentionally take on more costs than they bargained for. 

Commercial Real Estate

Commercial leases can also have a lot on the line for new potential owners. For one, rent payments for commercial properties are larger than those for residential or multi-family properties. Additionally, commercial rental property leases may have more rent adjustments or changes than other types of real estate. 

Furthermore, there are also more variables regarding who is responsible for certain expenses and how common area maintenance is handled. As such, potential buyers must get as much information about the property they’re potentially taking over before getting wrapped up in it. 

Residential Real Estate

Compared to multi-family and commercial real estate, tenant estoppel letters are less common in residential properties. After all, there isn’t as much risk when there’s only one or a few leases. Usually, a thorough inspection can reveal any potential problems a tenant might have with the property. However, that doesn’t mean there aren’t any benefits to an estoppel certificate for potential buyers. 

For instance, some tenants and landlords have verbal or undocumented agreements that aren’t included in a lease agreement. Whether it’s a verbal agreement about a pet or a particular parking space, these things must be disclosed to potential property buyers. If potential buyers are unaware of these verbal or undocumented agreements, it can lead to confusion or unpreparedness. 

Are Tenants Obligated to Complete Estoppel Certificates?

If a landlord plans to sell their property, they may need their tenants to fill out an estoppel certificate. As such, it doesn’t hurt for landlords to include a lease clause requiring tenants to fill out an estoppel letter upon request. 

That said, if your landlord presents you with an estoppel letter and your lease requires you to sign it, it’s crucial that you complete it within the specified timeframe. 

Typically, if you don’t complete and return the certificate as requested by a certain date, the landlord may just complete it themselves. Depending on the terms of your lease, refusal to sign and estoppel certificate may indicate that everything stated in the estoppel letter is accurate. However, this can be problematic if the information is incorrect. For instance, you may also be hit with a penalty fee or held liable for damages the landlord may incur because you fail to sign and return the document. 

However, if your lease does not mention your obligation to fill out an estoppel certificate, you don’t have to. This may be beneficial if you’re unsure of what you’re signing. After all, once you sign the document, you agree that the information is accurate when it may not be. 

Know Your Role as a Landlord or Property Manager

If you’re a landlord looking to sell or refinance your property, you or your property manager may need to present your current tenants with an estoppel certificate. Essentially, it helps give prospective buyers or lenders as much information as possible before proceeding with a large real estate transaction. That said, you may want to include a section in your lease agreements requiring tenants to complete and sign estoppel letters when presented to them.

Need More Advice? contact us today!

Need help coming up with a comprehensive lease agreement? Look no further than Bay Property Management Group. Our team of experienced property managers can help you find qualified tenants, create thorough lease agreements, perform prompt maintenance, and more. Contact us today to learn more about our services throughout Baltimore, Philadelphia, Northern Virginia, and Washington, DC.