Estoppel Agreements- when?

Question

Hi everyone,

We're working on an offer for our first investment property (a duplex)!

At the moment, we're unsure of the terms of the current leases. I'm wondering if we ask for an estoppel agreement in our offer? Before we even offer? After the offer is accepted? Help! TIA!

Kim Meredith Hampton · Answer

@Karen Liebner I usually have estoppels done in the last two weeks before closing. During due diligence, ask for rent rolls, T12’s, copies of leases and ledgers for tenants

Nathan Gesner · Answer

The estoppel should be done during your inspection phase, not the last two weeks.

What is the purpose of an estoppel? It's your opportunity to verify the terms of the lease: rent rate, authorized occupants and animals, deposit, any unwritten agreements between seller and tenant, etc.

Let's say you're purchasing an apartment building with ten units. The Landlord told you the apartments rents for $1,000 a month with deposits of $1,000. A week before closing, you get the estoppels and learn that:

• Tenant 1 is only paying $750 rent and he just signed a two-year extension. He also has a $600 deposit because he's been there forever and was never increased
• Tenants 2 and 3 are paying $900 and still have six months left on their leases
• Tenant 4 was allowed to make payments on his deposit, but the Landlord only collected $280
• Tenant 5 was told he could paint his apartment in exchange for a month of rent. He just painted the entire apartment flat black two days ago - after your inspection, so you didn't see it - and now says he won't owe rent next month

You get the picture. It's right before closing and you discover thousands in lost rent your first year, missing deposits, an entire apartment painted in flat black that will cost you a month of lost rent AND the cost of repainting, etc.

No, your estoppel should be collected during the inspection phase so you have an opportunity to identify problems and negotiate a remedy or walk away from the deal.

Kim Meredith Hampton · Answer

They aren’t any good after a certain time frame. Our legal council has always suggested we do them in the last two weeks. I know it sounds counter intuitive, but that’s the way it works

John Teachout · Answer

We require the estoppel prior to closing. Our concerns are primarily current rents paid, a copy of the lease or rental agreement (if there is one) and what (if any) security deposits were made. Most of the occupied properties we've purchased were poorly managed and didn't come with leases or deposits.

Vinh Nguyen · Answer

@Kim Meredith Hampton

Hi, if the estoppel is done after the acceptance of agreement of sale, doesn’t it seem too little too late since you can’t back out of the deal if the seller or tenant refuses to fill it out?

Estoppel Agreements- when?

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