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What is an estoppel certificate?
There may come a time when the building where a commercial tenant is renting space may be sold. When this happens, a potential purchaser will want to know the details of the relationship between the building’s tenants and the landlord It is a common requirement for a purchaser to ask for a document that provides such information. This is known as an estoppel certificate.
Residential Real Estate
A tenant estoppel certificate is usually not necessary when a real estate transaction involves residential real estate. The vacancies experienced by a commercial property are much more expensive than residential property. More individuals are looking for an apartment. It is much more difficult to replace a large retail operation in a commercial building.
Most retail spaces tenants and other types of commercial tenants will have a provision in their leases stating they will prepare and sign an estoppel certificate when requested by the landlord. The tenant will also be required to certify the details they provide in the estoppel certificate are true and accurate.
There are certain provisions a landlord will want to have in the estoppel certificate provided by a tenant. It should explain if the tenant’s lease is in full force. If the lease has been amended, assigned, supplemented or modified. It should be mentioned If the conditions in the lease are being met or if they are not. If any improvements agreed to by the tenant and landlord have been performed and satisfied. Any claims or offsets and more between the tenant and landlord concerning the rental agreement should be mentioned. Should any rent or other financial obligations involving payment of more than one month rent in advance needs to be mentioned. Any type of security deposited with the landlord and more should also be listed.
Basis For Purchase
The facts set forth in the estoppel certificates provided by the tenants of a commercial building must be as accurate as possible. The property’s owner will use this information as the basis for establishing a building’s purchase price. The facts in an estoppel certificate will also be used to negotiate a variety of other issues as well as calculating economic benefit from the real estate deal and more.
Many tenants of a commercial building will seek legal counsel when it comes to complying with the requirements of creating an estoppel certificate. A legal professional can review a lease to determine what is required to be in the estoppel certificate. They will be able to create a document using the correct legal language. The reason it is important to be very careful and accurate is the role the information will play in the real estate transaction. Should the facts provided by a tenant be proven false or inaccurate, the tenant who signed the estoppel certificate may have the commercial building’s owner seek legal recourse against them.
Rental Income Stream
A purchaser who is considering buying a commercial building will want to know about the property’s rental income stream. It is common for a purchaser to require a commercial building to have as close to 100 percent occupancy as possible before moving forward with the real estate transaction. The stated rental income produced by the property will show the purchaser if they will benefit from the deal. It is important for them to know if there are tenants who have prepaid their rent. They will need to know the length of time associated with the prepayments as well as the number of tenants who have pre-paid their rent.
An estoppel certificate is an essential tool used during a commercial real estate transaction. It will provide facts concerning the property and will often be the basis for a real estate transaction. An estoppel certificate will be used to determine the structure of a purchase agreement involving the sale of a commercial real estate building.