Imagine, if you will.
You're happy you just closed escrow on a beautiful triplex that already has tenants. And they're supposed to be paying $7,800/month in rent. Then, you collect the rent and you only receive $6,900 from the tenants. They're telling you the security deposits they've paid are $2,300/unit, and your paperwork says it's only $1500/unit.
You try to contact the seller, AKA their old landlord, but he's long gone. What do you do? Seems confusing and problematic. Welcome to being a landlord.
There are tools to prevent these discrepancies: a tenant estoppel certificate.
A tenant estoppel certificate is simply a signed statement by the tenant certifying the terms and status of a lease agreement. This verification stops future claims to the contrary and memorializes the lease agreement.
The certificate helps protect the new landlord and the tenants. Many lenders require tenant estoppel certificates when making loans on any tenant-occupied properties. These certificates help clarify the terms involved in the lease before the actual transaction closes. Besides clearing up any mistakes and misunderstandings, they could also help prevent any potential fraud.
Some of what is in a tenant estoppel certificate include:
- The rent, including the amount.
- Late charges.
- Pre-agreed-upon increases, if any.
- The security deposit amount.
- Starting, renewal, and/or extension dates.
- Lease modifications, if any.
Other terms may include:
- Who pays the utilities, like gardening and association dues.
- Parking arrangements.
- Delinquencies, if any.
- Evictions, if any.
What do you do if they refuse to sign?
First, if you are using a quality lease agreement like The California Association of Realtors (C.A.R.) lease agreement, it will state that if the tenant refuses to sign, they are agreeing to whatever is in the estoppel certificate. In this case, it is in the tenant's best interest to review the agreement and either sign it or dispute any inaccuracies. All good lease agreements will include an estoppel certificate compliance clause.
Second, we strongly recommend having a calm and polite conversation with the tenant. Most of the time, they might be hesitant but will sign.
Tenant estoppel certificates are important when buying rental properties. We believe it is a tool to prevent contentious situations and help strengthen the relationship between new rental property owners and their tenants.
Dunfee Real Estate Services, Inc.
DRE # 02026232