My Landlord is Asking for an Estoppel. Need I Sign It?

July 16, 2024July 29, 2024 Mark Elliot estoppel

An estoppel certificate is a legal document that simply establishes the terms and status of the rental agreement for a third party, like a prospective buyer, who is not a party to that agreement. Typically an estoppel arises during the closing of a sale. There is nothing to fear. An estoppel is a standard document in the sale of rental property. When presented with an estoppel to complete and sign, one may have questions. Here we try to answer those questions with what you need to know.

The Tenant Estoppel Certificate is simply a document that is completed and signed by a current occupant that will disclose and/or verify aspects of the tenancy to a prospective buyer and the buyer’s lender. It is a routine part of every property sale; the estoppel does not change any aspect of the tenancy.

The important aspect of an estoppel is that it is an attestation and the buyer and lender will materially rely on it. Here is a description of the importance of the estoppel from a commercial real estate post Using Tenant Estoppel Letters to Cut to the Chase (PDF):

A real estate lender’s primary concern is not about market value or replacement value of a property but rather the income stream from the property and the continuous receipt of that stream. In a closing with hundreds of pages of documents, the humble estoppel certificate, often being a document of two pages or less, is typically the only independent verification of all of the underwriting assumptions about the loan’s repayment source. More importantly, the estoppel certificate comes directly from the tenant, which is the ultimate source of the loan repayment…The tenant estoppel letter not only confirms the rent roll figures and certain terms of the leases that have been reviewed and relied upon by the lender, but it also seeks to bring to light any potential conflicts and problems in the future flow of the income stream.

There is much more information about estoppels in that post. The take-away for the tenant: an estoppel is an attestation that is legally-binding on the signer. So it is important that all questions be answered truthfully and to the best of the tenant’s ability.

In the following discussion we rely on the California Association of Realtors Tenant Estoppel Certificate form which is most often used.

Terms of Tenancy

The estoppel asks a variety of questions that can be answered by simply consulting the lease:

Date of the Lease
Name of the current Landlord
Name of the current Tenant
Current monthly base rent
Security deposit
Expiration date of current term
Number and Location of Parking Spaces
Number and Location of Storage Spaces
Who pays utilities services
Who owns appliances

Many of the answers are likely to be pre-filled by the landlord or the buyer based on the existing leases. Even if the lease expired long ago, and the tenancy has been month-to-month ever since, the original lease terms continue in effect throughout a month-to-month tenancy.

Verify that any pre-filled answers are correct. They are often not correct so do read the estoppel presented by the prospective buyer carefully! But there are a few things to which a tenant should pay particular attention when completing and signing an estoppel.

Terms of Tenancy

Is the ‘base rent’ amount accurate? The base rent is the current lawful rent as calculated by the rent amount at the inception of the tenancy (as reflected on the lease) plus lawful rent increases since. In Beverly Hills the rent cannot have been raised more than once every 12 months and not by an amount greater than the lawful percentage annual rent increase in effect at the time of the rent increase.

Is the security deposit amount accurate? The lease will show the amount of security deposit at inception of the tenancy. However the deposit may have been incrementally increased to reflect rent increases subsequent to the initial lease. It is not uncommon for this figure to not accurately reflect the money that the landlord holds.

Take this opportunity to review the change-in-terms-of-tenancy notices. (You did retain every one, right?) See that the base rent is correct – that it was not raised unlawfully. Verify whether the security deposit was increased over time and, if so, that it is accurately reflected in the estoppel. The base rent and security deposit must be accurate or else the new landlord can use the estoppel to challenge whatever the occupant may say later.

What does the estoppel say about the expiration of the current term? If the lease has expired then this answer will be ‘month-to-month.’ Most longtime Beverly Hills tenancies are month-to-month. For a fixed-term lease, though, the answer would be the end of the current lease term.

Appliances and utilities. One note about air conditioners: the estoppel may say it is landlord-owned regardless of whether the tenant paid for it and installed it. Know that the law allows the landlord to keep the air conditioner because it is considered appurtenant to the property. Once it is in the window it is a fixture.

Utilities may be more complicated. A shared utility, like water, for example, may be billed to the tenant if that’s what the lease said. Then the estoppel should reflect that. But know that the law is specific as to how that cost may be divided among tenants and passed-through. The estoppel is an opportunity to take another look at any shared utility. Was it noticed to the tenant properly? Is it divided in accord with the law? It may be prudent to inquire with the city as to whether any shared utility is billed lawfully.

Refuse is different. If the lease says that the tenant pays for refuse then that is presumably reflected in the estoppel. Likely the tenant has been paying that cost (which is about $80 every other month). But there may be cases where the lease is silent about refuse and alley but the landlord subsequently chose to pass that cost through. That is legal so long as 1) the lease doesn’t say that the landlord pays for refuse and alley; and 2) the landlord properly and lawfully notified the tenant about the new refuse and alley charge. This might be a good opportunity to check whether it was done properly. If not, get that $80 bimonthly cost refunded!

Parking and storage.This is another area that needs some discussion. Not infrequently a landlord and tenant may come to some informal agreement that the tenant can use a designated storage area or park off-street even if the lease does not include it. If that was not formally memorialized in a change in terms-of-tenancy then the tenant’s claim is tenuous. We suggest that if the tenant has used some part of the property over a period of years then to note that aspect of occupancy in the estoppel. For example, a designated storage space like a garage cubby, to which only the tenant had access, can be arguably cited as a part of the tenancy in the estoppel. Any such informal agreement may be detailed in the section that addresses modifications, amendments, addendums, etc.

That about an unauthorized pet? The Tobener Law Group makes an important point: memorialize it in the estoppel! “If a landlord orally agreed to allow a tenant to have a pet, the tenant would be wise to list that agreement in the estoppel certificate so the new owner will be put on notice of this privilege.” Read more: What is a Tenant Estoppel Certificate?

Characteristics of Tenancy

The estoppel includes several questions that may be easy check-offs for an occupant…or may be more complicated to answer depending on the situation.

“Tenant is the actual occupant…..Tenant has not assigned, transferred or hypothecated its interest under the Lease.” The practical aspect here is that the named tenant is the lawful occupant and that tenant has not brought in an unauthorized occupant or co-tenant, or else sublet to another tenant.

“All obligations of Landlord under the Lease have been fully performed and Landlord is not in default under any term of the Lease.” If the premises are habitable and the landlord honors the lease terms then it’s a check-off. But if the unit is not habitable, or is currently subject to a habitability-related complaint to a public agency (specifically Beverly Hills code enforcement or Los Angeles County Department of Health), then note it in the estoppel. This is also an opportunity to get the landlord to make a promised repair. The buyer may be interested to know that there are maintenance problems or may not much care. But we can recommend disclosure in any case.

“Tenant has not been given any free rent, partial rent, rebates, rent abatements, or rent concessions…” If there is an existing sub rosa arrangement whereby the landlord, say, shows a higher rent on paper than the tenant pays in practice, perhaps due to cash or some other consideration given to the tenant, then now is the time to disclose it. If a tenant is paying less than the base rent because she performs some building management duties but is not in the landlord’s employ as a building manager, then now is the time to disclose it.

“Tenant represents that Tenant: (a) is not in default of the performance of any obligations under the Lease; (b) has not committed any breach of the Lease; and (c) has not received any notice of default under the Lease, which has not been cured.” Here the prospective buyer and lender want to know what they are getting into. Is a tenant in rent arrears? Will the new landlord be mired in an unlawful detainer lawsuit with a tenant?

“Tenant has not filed and is not the subject of any filing for bankruptcy…” Bankruptcy can complicate a landlord’s effort to evict a tenant, so they want to know about it.

Our Take

The general rule is to answer factually and provide only the information that is requested. Take the time to check the facts. And don’t be pressured to sign it fast. The estoppel is one of those rare moments when the prospective landlord needs your cooperation more than you need theirs. Make sure is is factually correct. Again it is a procedural step and nothing to worry about. In any case the lease or rental agreement may require you to complete it!