Q: The building I live in is being sold and the manager just dropped off an estoppel agreement to sign. What is it for? Should I sign it?
A: An estoppel agreement documents a host of promises and conditions, both oral and written, made between the current tenant and current owner.
Usually a page in length, this fill-in-the-blank-type certificate boasts a comprehensive list of pre-existing conditions, agreements and legal promises made between landlord and tenant. Basics, such as original date of lease, current rent, rent due date, and amount of security on deposit usually fill the top portion of the form. Appliances included, and who pays for utilities, should be included as well.
The document represents an interesting concept, since the word “estoppel” is defined as “to stop, prevent or bar.” The idea is to establish in detail what the rental situation is and value the investment based on the information provided as of the moment the document is signed.
If information is gold, the estoppel agreement provides investors vital nuggets of information that determine whether the investment is a boom or a bust. Penciling out a rental property involves more than just “running the numbers,” since the residents are part of the equation, too. Why? Aside from documenting rental and security deposit amounts, landlord obligations must be documented, too. Parking issues and promises made by mangers or landlords to tenants that could cost the new owners thousands of hidden dollars.
Just a decade ago, a copy of the lease was the only paperwork provided as part of the disclosure process for escrow, and not much else. Today, buying rental property has grown more complex due to the vast network of laws, codes and tenant rights that apply to many properties.
In California, requiring a signed estoppel agreements from tenant and owner/mangers is part of the standard income-property contract, and is required in some leases.
Aren’t the leases good enough for the new owner? Once upon a time, before the days of lawsuits and a myriad of laws, yes. Today’s investor is faced with obligations ranging from laundry-room contracts to promises of free rent.
Tenants benefit, too, especially since oral details are included. “The owner said we could keep three dogs and promised us two parking spaces.” “The property manager promised the rent would never be raised if we took the place “as is.” Sometimes properties are being sold by family members who have no clue as to rental promises made. In many situations, estoppel information comes in handy for everyone.
Eviction issues can hinge on lease or estoppel details, too. What if the owner said OK to a pet that the lease forbids or told the tenant the rent can be late?
By clearing up any private details, misunderstandings can be avoided.
Besides the bread-and-butter basics that confirm lease details, any changes of possession, such as a sublet or roommate, are included. What if the original tenant moved out? Sublets may be able to protect themselves when filling in the space for the “current tenant.” This could protect a resident who may not be on the lease, but does pay rent and live on the premises.
One of the most important spaces to pay attention to is: “There are no verbal or written agreements or understandings between landlord and tenant with respect to the premises, except for the following….”
That’s your chance to fill in any verbal modifications, promises or rights granted.
A typical misunderstanding crops up when multiple owners or managers are involved. For example, lawsuits have emerged when tenants were told they had first rights to purchase a property, and the right was ignored at sale.
“All obligations of the Landlord under the lease have been fully performed.” If you were promised anything not written out as part of the current lease or rental agreement, be sure to spell out the particulars. Free rent? Rent reductions? The new owner wants to know what to expect when it comes to the financial bottom line.
Anything that can interfere with collecting rent is also examined. As a result, tenants certify they are not currently in state or federal bankruptcy.
By the way, the owner isn’t the only party privy to the information. Lenders now rely on the minutia the agreement provides and take particulars seriously.
Before signing on the bottom line, be sure to read the fine print and check that the information on the entire form is correct. If you’re unsure about your rights or how the form particulars are written, you may want to contact an attorney for explanation of terms and rights.
Copyright 2006 Helene Lesel