What is an Estoppel in Real Estate

[Charles Carillo]

Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing What is an Estoppel in Real Estate.

Real estate transactions can be very complicated; especially when there are tenants in the property. In commercial real estate specifically, estoppels are a common document that maybe required during the due diligence phase of a commercial real estate sale. In this episode, Charles discusses what estoppels are, and why they might be required.

TALKING POINTS

➡ There are 2 types of estoppels that are regularly involved with real estate transactions. A tenant estoppel, and an association estoppel.

➡ A tenant estoppel certifies the current state of the lease terms for a third party. Typically, the certificate requires the tenant to verify the rental amount, if the tenant is current on their rent, or does the tenant have any potential claims against the landlord. The certificate is commonly utilized when a property owner is selling the building or they are looking to refinance the mortgage.

➡ An association estoppel is provided by a homeowner's association (HOA). It clearly spells out the particulars about the property you are looking to purchase, and the HOA that the property resides in. Information on the homeowner's association will include governing documents, membership requirements, and if there are any special assessments or liens on the property you are trying to purchase. An association estoppel will confirm or deny that the subject property complies with the HOA's regulations and rules. To obtain the estoppel, buyers must contact the homeowner's association directly.

➡ Breaking Down the Tenant Estoppel

o The tenant estoppel is a due diligence item signed by the tenant, and it verifies the terms and conditions of the tenant’s lease. It is common with apartment buildings and commercial properties.

o The tenant estoppel verifies what the seller is telling the buyer; and a lender may request tenant estoppels to confirm that a tenant is meeting their obligations of the lease.

o Some examples of when tenant estoppel becomes helpful is if a landlord has discounted a tenant’s lease for 6 months, because of a roof leak but, fails to tell the new buyer, and just provides the original lease during due diligence. The tenant estoppel confirms the new temporary lease terms.

➡ What is included in a Tenant Estoppel?

➡ Requirements may vary but, the main points contained in a tenant estoppel are:

o The start date of the lease

o The date to which rent has been paid

o A verification that there are no defaults or judgments by the landlord or tenant, or if there are defaults, a statement of the defaults.

o A verification that the lease has not been modified, or a list of the lease modifications.

➡ Tenant estoppels are not required in every commercial real estate transaction, but they are recommended.

Listen - https://podcasts.apple.com/us/podcast/ss137-what-is-an-estop...

Watch - 

[Obed Calixte]

This is a well written, clear and straight to the point write up on estoppels. Many are familiar with tenant estoppels but commonly forget the association version!