Tenant estoppel certificates

Real estate investors should be using tenant estoppel certificates (aka tenant estoppel letters) in connection with acquisitions of all tenant-occupied properties… even if they are not required to do so by a lender in connection with obtaining financing.

Why? Because you don’t want to find out after closing that some material fact about the tenancy has been hidden from you as a buyer taking title with a tenant in place. And you need to be able to get a tenant on the record regarding the status of the lease and “estop” them from making a different claim later.

Estoppel is a legal doctrine that says a person is prohibited from taking a different position later due to detrimental reliance upon representations previously made. The purpose of the tenant estoppel certificate is therefore to legally prevent the tenant from changing his or her story and denying the certifications made to the new landlord (you) at a later date.

Here are some common certifications to include in your tenant estoppel document:

  • That the Lease is in full force and effect and has not been modified, supplemented or amended in any respect.
  • That the commencement date of the Lease is X, and the expiration date of the Lease is Y. That the Tenant has/has no option to renew the term of the Lease.
  • That the Tenant has not paid rent or additional rent beyond the current month and agrees not to pay rent or additional rent more than one month in advance at any time.
  • That the rent has been paid through X date.
  • That there are no defenses to or offsets against the enforcement of the Lease or any provision thereof against Tenant.
  • That the tenant has deposited $X as a security deposit with Landlord pursuant to the terms of the Lease.
  • That the Landlord has not agreed to grant Tenant any free rent or rent rebatement.
  • That the Tenant is not in default under the Lease and to the best knowledge of Tenant, there exists no default by Landlord.
  • That the Lease is the entire agreement between the Landlord and Tenant pertaining to the property.
  • That the Tenant has no right of first refusal with respect to the property, option to cancel or terminate the Lease, or option to purchase all or any portion of the property.
  • That the Tenant agrees that no future amendment of the Lease shall be enforceable unless such amendment has been consented to in writing by a third party (such as a lender).
  • Since the date of the Lease, there has been no material adverse change in the financial condition of Tenant, and there are no actions, whether voluntary or otherwise, pending against Tenant under the bankruptcy, reorganization, arrangement, moratorium or similar laws of the United States, any state thereof or any other jurisdiction.

If the tenant cannot or will not make these certifications, you’ve got a problem. Each of these material certifications should be given by the tenant(s) during the investor’s due diligence/study period. If they cannot be obtained, the contract should be terminated or amended.