Planning to get a house on the lease? First, you must know about the Estoppel Certificate. Read here!

Estoppel Certificate

It is common to not know about real estate before taking a lease. However, it is not intelligent to jump directly into a decision without knowing the basics. For Instance, we get a house on lease, but we are unaware of the terms and conditions. Moreover, if anything goes wrong, we blame that it was not told. Indeed, it was not told! But, it was written on an Estoppel letter. I know you are unaware of the term “Estoppel Certificate”. We are going to discuss this document today. Also, we will tell you about do’s and don’ts when you receive the copy. Read the next section of the article to know more!

Estoppel Certificate? What is it?

Estoppel Certificate

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To begin with, an Estoppel Letter is a document describing the lease conditions. The term is often used in the world of a Real estate to define the rights and requirements of the tenants. Moreover, it also reflects the relationship between both parties. I think you will better understand with an example. Suppose you buy a house or any other assets on lease. Therefore, you will receive an Estoppel letter describing the terms and conditions of the agreement. Furthermore, the certificate consists of all the essential clauses that a tenant and landlord should know.

In other words, it is like a brief description including all the clauses related to the lease.

What to do in case your landlord gives you the estoppel certificate?

You will receive the certificate from your tenants. Do you need to sign it? We will discuss all that in this section of the article. The primary use of the certificate is to demonstrate the cash flow on the leased assets. Moreover, it also defines the number of unpaid leases if the owner decides to sell the property. 

Image credits: Austin Tenant Advisors

Furthermore, the certificate is equally important to the buyers. In other words, the certification ensures the leaseholder could not claim the property. In this way, the Buyer has the total freedom to cancel the remaining lease and take over the property.

One of the clauses in the estoppel letter allows the tenants to showcase their opinions about the property to the Buyer. In this way, the Buyer gets an overview of the property, and the landlord could not lie.

Now, Want to know an interesting thing about these letters? The Estoppel letters are concise, just about a page or two only. This gives an advantage to the reader. Generally, whenever we get any formal letter containing Terms and conditions. We avoid reading it and sign it without knowing any terms. Never do that! 

The mantra in life is to read before committing. Therefore, whenever any bad situation comes, the tenant says that they were not aware of this. And the typical landlord shows the letter with a sign. This happens to maximum people and needs to stop.

The briefness of the letter makes it easy to read in a short time. You can cover all the clauses and terms and conditions.

Therefore, it is essential to read the letter carefully before signing. Also, the letter should be signed when both the tenant and landlord agree with the T&C.

Does an Estoppel Certificate protect Tenants or landlords?

A buyer must do a thorough research on the asset before buying. If the property they will buy already has a tenant, they need to ensure that nothing is alarming.

Now, Estoppel Letter comes into the picture when the tenant claims something that goes against the decision. 

For example, if the tenant says that he was paying $800 instead of paying the decided price of $900. This gives birth to confusion in the mind of the Buyer against the landowner. Therefore, the landlord could show the Estoppel letter and rest his case.

Now, once the Buyer becomes the new landlord, he has every right to decide what to do with the tenant.

Also, any current legal claims are against the landowner if they pass on to the new one.

Estoppel letter also saves the tenants against any false claims from the landlord.

Thus, I think it’s justified that the Estoppel letter saves everyone, i.e. tenants, landlords and even the Buyer.

Things to know before signing the letter!

  1. If a tenant looks at its lease agreement carefully, they will be instructed to fill and give the estoppel letter back. This is because this letter is the primary document whenever you buy anything on lease or rent.
  2. Moreover, it is imperative to fill this letter as quickly as you can. A tenant needs to make sure that the information in the estoppel is correct. This is because the Estoppel certificate overrules all the T&C mentioned in the lease agreement. This means if the tenant or landlord claims anything, it’s the estoppel letter that confirms the claims are correct or not.
  3. For example, if there is a clause in your estoppel letter that the landlord will fix the bed before leasing it and the landlord denies it. Thus, they will look into the estoppel letter to confirm the information.
  4. The tenant must take time and fill in all the information correctly. Also, it is important to read all the clauses mentioned in the estoppel letter before signing it. This reduces the possibility of any theft in the future.
  5. However, once the tenant signs the estoppel certificate, they no longer have the freedom to claim anything that goes against the letter.

Contents of the Estoppel 

The Estoppel letter consists of some vital information. Again, This information is helpful for the affirmation in case of any factual or false claims. Therefore, please think twice before filling it.

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Let us check what the contents of this letter: are-

  1. Identification of both: tenants and landlords
  2. Full address of the Asset(Property or building)
  3. Beginning and ending date of the lease agreement
  4. This section contains any advance payments made by the tenant, like any security deposit or rent for a few months.
  5. Moreover, there is another section in the letter indicating the payment history of the tenant. This gives an idea if the tenant is a regular payee or not.
  6. Also, there is a section showing the rights of tenants, if any.
  7. Contact information of both the parties.
  8. If payment renewals, arrangements, or extensions, there is a column for the same in the letter. However, it is advised to keep this column clear anyhow. This makes a good impression in case the lease transfers to the new landlord. 
  9. Moreover, if there is only one or no payment extension request from the tenants, it makes a good impression on the new landlord. This increases the chances of the Buyer letting you stay. 
  10. Also, if the payment extension columns show the behavioural issue. The new landlord will be pretty clear of the fact that you are not the regular payee. I am not trying to worry you. However, They might cancel the lease and let you go if this is the case.

When to sign the letter?

If you are not sure when to sign the estoppel and give it back, it is wise to check the lease agreement. However, if you fail to track the time duration, call your landlord.

Moreover, if you cannot find the clauses per the discussion, you need not sign them. Instead, you should meet the landlord to discuss further. Both parties need to agree before signing. This is because both the parties can use the letter against each other in future.

What if I don’t sign the letter?

This is an intelligent question to ask. However, the answer is not that simple. If the letter consists of everything both the parties discuss, the tenant is liable to sign the estoppel certificate. 

However, if the tenant does not wish to sign it, the landlord has every right to sign it on your behalf.

Also, The landlord has every authority to report you or to charge penalties etc.

Therefore, it is better to sign the letter for your protection.

Remember, the letter does not put you at any kind of risk as long it has the correct information.

Conclusion

I hope you now are well aware of the term Estoppel certificate and its importance. Moreover, we understood the fact that it is essential to double-check the letter before signing it. This is important because this letter is much more critical than the lease agreement. It overrides the clauses mentioned in the Lease agreement. I hope the article was worth reading. Take care and be safe.

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Real Estate

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