What exactly is a tenant estoppel? By definition, an estoppel certificate is a “signed statement by a party certifying for another’s benefit that certain facts are correct, as that a lease exists, that there are no defaults, and that rent is paid to a certain date. A party’s delivery of this statement estops that party from later claiming a different state of facts.’’ Black’s Law Dictionary, 572 (7th Ed., 1999).
In other words a tenant estoppel is a certified statement by a tenant that verifies the terms and conditions and current status of their lease. Most commercial real estate leases require a tenant to provide an estoppel letter or certificate upon request and this is often a critical step during the due diligence phase of an acquisition and the also during the underwriting of a commercial real estate loan.
When a landlord puts a house up for sale that still has tenants living in it during that time, they should sign an estoppel certificate. A tenant must sign an estoppel certificate where the written lease contains a provision requiring the tenant to do so. It is a breach of lease to refuse to complete an estoppel where the lease requires a tenant to do so.
This can also be known as a rental information questionnaire. This is used to inform a potential buyer what rights are already in place for the tenants. This can be something as simple as the landlord agreeing to let the tenant have a pet or utilities such as heat and hot water included.
Why is this so important? The tenant estoppel provides proof of cash flow and rent payments on time, which is ultimately what a potential investor or lender in a property is concerned with.