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What Is An Estoppel Certificate And Why You Need It
An estoppel certificate is an important piece of legal document, usually requested by a third party, that defines the relationship between a landlord and tenant.
A common event that requires the production of this certificate occurs when a landlord is trying to finalize selling a property with inherited tenants.
This because a prospective buyer would want to know the situation a little better when conducting due diligence checks.
Information contained in a certificate concerning residential tenants could include:
• Names of tenants and occupants
• Commencement and expiry date of lease
• Rental amount
• Rental due dates
• Security deposit details
• Responsibilities concerning utilities and appliances
• Special arrangements with landlord
• Repairs needed on the property
• Issues concerning pets
Information contained in a certificate concerning commercial tenants could include the points found in residents’ document and:
• Whether landlord has fulfilled his duties according to the lease
• Whether the rental agreement has been amended or modified in the past, or will be in the future
• Whether landlord has delivered on previous promises to the tenant
• Existence of current claims against the landlord that might offset rental or security deposits
• Existence of collateral or security deposited with landlord
• Advanced rental payments (if any)
There are times when an estoppel certificate is also requested concerning a mortgage.
When a buyer of a house is to takeover an existing mortgage as the new borrower, it’s only right that the new owner will want to know exactly what is the outstanding loan amount owing to the lender.
When this request is put forth to the lender, a certificate of reduction will be generated and to show how much of the remaining loan is to be repaid.
The original borrower will then verify it’s authenticity by validating the amount outstanding and interest rate.
While this document is termed as the certificate of reduction, it is also labelled as an estoppel certificate in industry practice.
How an estoppel certificate helps you as a landlord
This document will greatly prevent “you say I say” problems that might potentially occur in future when dealing with inherited tenants.
Should tenants claim in future that certain terms or agreements were made and agreed upon with the previous landlord, this document would be able to clarify things.
And if push comes to shove, it is a strong piece of evidence that will stand strongly in court to protect your investment.
With this in mind, it is essential for tenants and the previous landlord to endorse the certificate with signatures.
After review it, the new landlord should sign it as well.