What Landlords Need to Know About Tenant Estoppel

When dealing with a commercial property, knowing what a tenant estoppel certificate is and contains is essential.

What is a Tenant Estoppel Certificate?

The legal definition of a tenant estoppel certificate, according to Black’s Law Dictionary, is as follows: “a written, signed stipulation of previously established facts preventing subsequent contradiction or recant of these facts.” The word “estop” means to prohibit, and a tenant estoppel aims to prohibit a tenant from taking a position contrary to what is stated in their certificate.

In other words, a tenant estoppel is a legal, certified statement made by a tenant during the leasing process. The document (in the form of a letter or certificate) will verify the terms, conditions, and current status of the lease agreement. It’ll also ensure a tenant is legitimate and compliant.

Most of the time, commercial landlords will require an estoppel certificate from the tenant. This step is extremely important for due diligence during the acquisition process. It’s also especially crucial when underwriting a commercial real estate loan. Residential landlords usually don’t use tenant estoppel certificates (since the stakes are much lower, in terms of money), but that doesn’t mean they cannot be useful.

A tenant estoppel will provide evidence of an establishment’s cash flow, which is information a potential investor or lender would need. Many people do not know about or require a tenant estoppel certificate, which can put both the landlord and tenant’s negotiations at risk.

What is in a Tenant Estoppel?

The tenant estoppel document outlines specific information about the lease, tenant, and property. Here are common elements of a tenant estoppel certificate:

  • The start date and end date of the lease
  • Terms for renewals and/or extensions of the lease, including relevant dates
  • How much rent is due and when it is paid
  • If either party has default rights and responsibilities under the lease, as well as what these rights and responsibilities are
  • Verification that the lease is unmodified and in full force and effect
  • If any deposits exist and if interest is being collected, how the deposit can be used and so on
  • Modifications to the lease, if applicable

What it Looks Like

Asking a tenant for an estoppel certificate/letter is pretty straightforward. If you want to make your own form for the tenant to fill out, simply make sure to include all of the important aspects of the lease. Here’s a simple example from eForms:

Tenant estoppel certificates are important in commercial real estate.

What About Tenancy By Estoppel?

If you’ve heard of a tenant estoppel certificate, you’ve probably heard of tenancy by estoppel too. It turns out that the two aren’t exactly related, so it’s a good idea to know the difference.

Tenancy by estoppel basically means a person still has tenancy rights, even if the grantor (i.e. landlord) did not have the right to grant tenancy. This can happen, for instance, if the landlord violates statutory provisions or their mortgage deed’s terms and regulations. The lease will still be legally binding and the landlord may still sue for unpaid rent, if necessary. If the landlord gains the right to grant tenancy, then the tenancy by estoppel will become a fully legal tenancy.