Key Takeaways
- Tenant estoppel certificates verify lease details—including rent amounts, deposits, dates, rights, and claims—helping buyers avoid costly surprises after closing.
- They protect both investors and lenders by confirming the property’s true income, revealing inconsistencies, and reducing the risk of disputes with tenants.
- Including an estoppel requirement in the purchase agreement ensures the seller obtains accurate documentation from tenants, streamlining due diligence and supporting loan approval.
Property investors are exposed to major risks when buying a rental with existing tenants. Picture this; you bought a property under the assumption that the monthly rent for each unit in the building was $2,600 and the tenants had paid $1,500 each as their security deposits.
But when the time came to collect the rent, instead of $2,600, each tenant paid you $1,800 and while you were still trying to figure out what was going on, you learned they paid $2,300 as their security deposit, not the $1,500 that you were told. To make matters worse, you can’t find the old landlord.
What do you do?
These kinds of situations not only throw your cash flow projections for the rental property off track but they result in disagreements that can drag into costly legal battles with the tenants. Every property investor wants to avoid issues like these, especially with a rental property they just acquired.
However, given that buying a property with existing tenants is a quick way to start earning money from your rental as soon as you close the deal, how can you avoid this trap? This is where a tenant estoppel certificate comes in. JMAX Property Management is here to help you understand the ins and outs of tenant estoppel certificates.
What Is a Tenant Estoppel Certificate?
Estoppel is a judicial device that bars a person from making a claim which contradicts something they said before. In this case, it “estops” or prevents a tenant from making a contrary claim to what they said on a previous occasion.
As part of the sales process, the tenants in the property are required to sign a document verifying the terms of their lease for a third party, namely, a buyer or lender. By signing the document the tenant helps the buyer confirm the critical details of the lease, such as, the rent amount, security deposit, and the start and end dates of the lease.
The goal of a tenant estoppel certificate is not to alter the lease terms but to confirm them. Through this document, buyers can spot inconsistencies in a lease, such as alterations made since the document was originally executed. With a tenant estoppel certificate in hand, buyers can proceed with confidence when buying a tenant-occupied property.
Lenders also use tenant estoppel certificates during the mortgage approval process for a rental property with existing tenants. Tenant estoppel certificates help lenders assess the property’s cash flow and also ensure that there will be “no surprises” since every party to the sale is fully-informed of the necessary details.
Contents of a Tenant Estoppel Certificate
A tenant estoppel certificate will usually contain a description of the property with information about the property type, address, and areas of the building occupied by the tenant. It will also contain details of the lease such as a confirmation that it is still in full force, the start & end dates and the name of the tenant in the original rental agreement.
Amendments and modifications to the original lease will be included, along with the rent amount and due date, amount of the security deposit, information on where the security deposit is held and how it will be repaid.
Also included are any rights granted to the tenant by the lease, such as the right to renew, extend or terminate the lease, and the conditions on which these rights are based, and all outstanding claims by the tenant against the landlord, such as reimbursements for property damage, and rent or security deposit disputes.
Lots more can be included as well, depending on the peculiar requirements of lenders/buyers or the unique situation of the property.
How to Get a Tenant Estoppel Certificate When Buying a Rental Property
Tenant estoppel certificates help you to mitigate risk when buying a tenant-occupied property and offer a reliable tool for assessing the profitability of an investment. They help you uncover lingering issues that may prevent the smooth operation of your rental and speed up the loan approval process by proving the property’s financial stability.
What is the process for getting a tenant estoppel certificate?
Include It in the REPC
It is the job of the seller to get the estoppel certificate from the tenants. Include an estoppel certificate as one of the requirements for completing the purchase when you make your offer for the property. If you only learned of the importance of a tenant estoppel certificate after you made your first offer, include it as a clause in your counteroffer.
Review the Certificate
After the tenant has completed the certificate, review it against the details of the lease provided by the seller (landlord). Double check that details like the current rent amount, security deposit amount, lease start & end dates, and other important information correspond with what the seller says.
What If the Tenant Refuses to Sign the Estoppel Certificate?
If a tenant is reluctant to sign the document, that should be expected. You can expect the seller to help the tenant understand that an estoppel certificate is also for their benefit because it prevents the buyer from making arbitrary claims on the tenant after they take possession of the property. Most tenants will sign if their suspicions are cleared.
However, if the tenant still refuses to sign, the landlord can sign on their behalf. As long as the seller requested the document, a tenant estoppel certificate is binding on the tenant even if they did not sign it. In the eyes of the law, that tenant has automatically accepted the contents of the certificate as accurate and it will be legally-binding on them.
Requiring a tenant estoppel certificate is a small step that can save you from tons of trouble. It should be one of the tools in your arsenal whenever you are looking to buy a tenant-occupied property.
Bottom Line
A tenant estoppel certificate is one of the most valuable safeguards available to real estate investors purchasing a tenant-occupied property. By confirming crucial lease details directly with the tenant, investors and lenders can avoid unexpected financial discrepancies, uncover hidden issues, and ensure a smoother transfer of ownership.
Including an estoppel certificate in your purchase agreement protects your cash flow, reduces legal risks, and helps you make informed decisions with confidence. For any investor seeking stability and clarity in a rental acquisition, requiring a tenant estoppel certificate is a simple but essential step.
Contact JMAX Property Management today to learn more about how we can help you protect your investment and maximize profit.
