Key Takeaways
Always require tenant estoppel certificates when purchasing tenant-occupied properties to verify rent amounts, security deposits, and lease terms before closing.
Tenant estoppel certificates legally protect both landlords and residents by preventing disputes or changes to agreed-upon lease conditions.
While residents may refuse to sign in some cases, clear communication, pre-filled forms, and resolving concerns can encourage cooperation and avoid costly delays.
As a landlord, it’s important to practice due diligence in every aspect of property management to ensure your property’s success. It is important to take a thorough approach from the beginning, including during the property purchase process.
Imagine you’ve just closed an escrow on a beautiful triplex and, luckily for you, the rental building already has residents living in it. The previous landlord has let you know how much to expect in terms of rental income from the triplex and how much you will collect from each unit.
But surprisingly, by the due date, you receive less than expected from the residents. On top of that, the tenants also tell you that they have paid a different amount in security deposits per unit, rather than the numbers outlined in your paperwork from the previous landlord.
Of course, you try reaching out to the old landlord, but he’s long gone. Welcome to the world of landlording.
To be a successful landlord, you must always do your due diligence where it’s needed. Whether it's finding the right location, buying a rental investment, or choosing residents, Foothills Properties is here to help.
What is a Tenant Estoppel Certificate?
A tenant estoppel certificate is a legal document that certifies certain material terms of the lease agreement. This verification helps memorialize the lease agreement and stop future claims to the contrary.
As a new landlord, the certificate protects both you and the resident. As a matter of fact, many lenders require it before approving loans for tenant-occupied properties. The certificate helps clarify all the lease terms before any transactions can close.
Additionally, tenant estoppel certificates help clear up any mistakes and misunderstandings that can arise.
A tenant estoppel certificate usually includes details such as the amount of rent residents pay and due dates, any late fees for unpaid rent, the amount of the security deposits paid, the beginning and end dates of each lease, any modifications made to any lease agreements, and a statement on whether any party is currently in breach of the lease.
Other details that the certificate may contain include lease clauses like the responsibilities for utility payments and parking arrangements, along with any delinquencies, or evictions due.
The word “estoppel” comes from the legal principle that prevents someone from reneging on their word.
If a resident signs an estoppel certificate stating that they pay a certain amount in rent per month, they must continue paying the same amount to the new landlord. In other words, the resident becomes “estopped” from “going back on their word.”
Can a Resident Refuse to Sign an Estoppel Certificate?
Technically, yes. A resident can refuse to sign an estoppel certificate, however, this move can have severe legal and financial repercussions, especially if the lease agreement requires it.
If there is a language in the lease that requires the resident to sign it, and they refuse, they would be in breach of the contract. The landlord would then have legal grounds to evict the resident from the unit. You could also sue them for any damages that may accrue.
If the clause isn’t there, the resident may not be obligated to sign the estoppel certificate. If you find yourself in this situation, you can let the resident know that it is there for “mutual protection.” Shift the perspective and let them know that the certificate is meant to prevent the new landlord from changing any terms of the lease.
You may also want to pre-fill out the details of the estoppel certificate and ask the resident to confirm and sign. If you just send them a blank form, they are far more likely to ignore it. Alternatively, you can incentivize the resident to sign the form with a gift card or a small rental discount.
You may also want to address any outstanding repairs or maintenance issues that may be making the resident unhappy. Spending some money to fix a broken sink, for instance, could be a tiny price to pay compared to losing out on a sale.
Bottom Line
Tenant estoppel certificates are essential when buying new investment properties. It can help you avoid potential contentious situations that can arise after closing on a rental investment.
For expert investor services in Tucson, look no further than Foothills Properties. We can save you time, effort, experience, and knowledge. We are a reliable and professional property management company that successfully manages over 500 properties. Contact us today to learn more!
