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Key Takeaways
Verify Lease Details: A tenant estoppel certificate confirms the accuracy of rent amounts, lease terms, and tenant obligations, protecting buyers from misleading information provided by the seller.
Mitigate Risk: This document minimizes potential disputes with tenants, safeguards the investment, and is often required by lenders during loan underwriting.
Support Property Management: Estoppel certificates give landlords and property managers a clear, legally binding snapshot of tenant responsibilities, payment history, and lease compliance.
When buying a rental property with existing tenants, one of the things experienced buyers do is ask the seller of the property to provide information on the rental rate and operating expenses of the property.
These help them make an informed decision on the viability of their investment. The challenge is that some sellers, wanting to make their property appear more profitable than it really is, may embellish this information.
The owner can claim to be charging a higher rent than what the tenants are actually paying, laying the foundation for future disputes with those tenants.
How do you verify that the information you are getting from a seller is accurate? This is where a tenant estoppel certificate comes in. A tenant estoppel certificate is one of the lesser-known tools for minimizing your risk when buying a rental property with tenants.
In this guide from KRS Property Management, we’ll explain what a tenant estoppel certificate is, why it matters, and how landlords can use it to protect their investment.
What is a Tenant Estoppel Certificate?
A tenant estoppel certificate is a signed document by a tenant acknowledging the terms of their lease agreement for a third party. It memorializes the lease terms to ensure that the tenant cannot deny or contradict the lease terms in the future.
A tenant estoppel document is often required by lenders or buyers to help them determine the true financial status of a rental property.
By requiring this document before finalizing the purchase, you can detect inconsistencies and inaccuracies in the information provided by the seller.
This certificate is essential for preventing disputes with tenants. Additionally, it protects the tenant by preventing arbitrary claims by the new owner. This document helps investors uncover errors and fraud before, instead of after, a transaction closes.
This is why it is a standard requirement by lenders when making loans on an occupied property. What details can be included in a tenant estoppel certificate? All necessary details can be included, but here are the most common ones.
What to Include in a Tenant Estoppel Certificate?
A tenant estoppel certificate isn’t just a formality, it’s a vital document that verifies key details of the lease and helps protect both seasoned and accidental landlords from future disputes.
The certificate typically includes the following information:
Rent & Payment Terms: The certificate should state the current rent amount, any applicable late fees, and clauses that allow for rent increases. It must also disclose rent already paid in advance and any outstanding balances.
Disputes & Defaults: Any ongoing disputes, rent defaults, or tenant claims against the landlord must be clearly identified.
Lease Status: The document should confirm that the lease is active, list its start and end dates, and note any amendments or modifications. It should also disclose any pending legal actions.
Subleasing Rights: The tenant must indicate whether they have the right to sublease or if such actions are prohibited under the lease.
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Tenant Responsibilities: The certificate should outline the tenant’s obligations regarding reporting repairs, maintenance of their unit, and care of common areas. It should also specify who is responsible for utilities, HOA fees, rental landscaping, parking, and similar expenses.
Use of Property: The tenant must detail how they are permitted to use the property, including any exclusive rights granted (such as parking spaces or storage areas) or restrictions that apply.
Security Deposit: The document should include the security deposit amount, where it is being held, whether interest is accruing, and the conditions for deductions or return. The anticipated return date should also be stated.
Compliance Statements: Both parties should confirm compliance, the tenant attests to following the lease terms, while the landlord verifies that required services, improvements, or obligations have been met.
Basic Information: The certificate must list the property address and the tenant’s up-to-date contact information.
By including all of these details, a tenant estoppel certificate provides clarity, ensures accountability, and minimizes the risk of future misunderstandings for everyone involved.
Benefits of a Tenant Estoppel Certificate
The tenant estoppel certificate shows the new landlord and the tenant that the lease term is cast in stone, thus offering security to both parties and allowing the relationship between them to take off on a foundation of mutual trust and respect.
From the tenant’s point of view, the tenant estoppel certificate lets them verify the information their old landlord is giving to the new landlord.
For the new landlord, it reveals the tenants' obligations and brings them up to speed on all the important details about their new property.
What if a Tenant Refuses to Sign?
The lease agreement will usually have a clause requiring the tenant to sign this document. Tenants’ obligation to sign may also be found in the apartment association agreement.
This is one reason why you must work with a qualified attorney when preparing lease agreements for a rental property. That being said, most tenants will sign the tenant estoppel certificate if you ask them nicely, but even if they don’t, there is still a way out.
The landlord may sign on behalf of the tenant, and in that case, it is assumed that the tenant has acknowledged the information in the document to be accurate. This makes the tenant estoppel certificate binding on a tenant whether they sign it or not.
In the worst-case scenario, the landlord may even charge the tenant a fee for not signing the certificate. But this is not the best footing for a new landlord to start their relationship with tenants.
It is usually possible to get even the most hard headed tenant to sign a tenant estoppel certificate if they understand that the document protects them.
Bottom Line
A tenant estoppel certificate provides clear, legally binding details about a tenant’s rights and obligations, helping you assess risks and potential profits when buying an occupied rental property.
It also gives landlords and property management companies like KRS Property Management a reliable snapshot of lease terms, payment history, and tenant responsibilities, making ongoing management and decision-making much smoother.