Just like you would with any other type of investment, due diligence is key when buying a rental property to keep your investment safe. This is especially true if you’re looking to buy one that has a resident living on it.
That’s why when buying an occupied property, always insist on a tenant estoppel certificate. A tenant estoppel certificate is a legal document that will help you make an informed decision before closing on a property deal.
Without the certificate, a few things can go wrong on your end. Imagine closing on a stunning single-family home. From what the seller tells you, the property rents out for $2,500 a month. But soon after, reality strikes and you come to realize that the property actually rents out for $1,800 per month.
After getting hit by this reality, you naturally reach out to the former property owner for clarification. Unfortunately, your calls go unanswered and the escrow is long closed. What do you do?
Now, all that could have been avoided with a tenant estoppel certificate!
In today’s blog, we’ll walk you through everything you need to know about the tenant estoppel certificate. From what it is, to its purpose, to what it entails, and everything in between. Keep reading to learn more!
What Is a Tenant Estoppel Certificate?
A tenant estoppel certificate is a legal document that a tenant fills out to clarify the details of their rental agreement. The goal is to affirm whether any discrepancies exist between what the seller says and what is actually on the lease agreement.
The tenant’s signature acts as an acknowledgment of the terms and status of the lease. The tenant, therefore, loses the right to contradict or deny the facts they assented to in the certificate.
With this in mind, a tenant estoppel certificate is an invaluable document to have for any newbie rental investor. It can help you ascertain what you’re getting yourself into and prevent potential fraud by a rogue landlord.
What Purpose Does a Tenant Estoppel Certificate Serve?
First and foremost, a tenant estoppel certificate is a legally binding document. Savvy landlords use it to obtain factual information regarding the rights and responsibilities of a tenant in a rental agreement.
As a budding landlord, knowing this before closing on a deal can help you make an informed decision on whether the deal is going to be worthwhile or not.
Knowing what the tenant paid as a security deposit, for instance, can help you understand your obligations better when it comes to returning it at the end of the lease.
Imagine a scenario where the tenant paid the old landlord a security deposit of $1,800 for a single-family home.
However, the paperwork only indicates a payment of $1,000. In such a case, you’re bound to realize a loss of $800 when refunding the deposit back to the tenant.
A tenant estoppel certificate can help you avert such a discrepancy, as the tenant will be legally bound to provide the correct information.
What Information Is Contained in a Tenant Estoppel Certificate?
Sure, every tenant estoppel certificate is different. But even then, certain things remain standard. Here are the basics that every tenant estoppel certificate should contain.
- Basics of the lease. A tenant estoppel certificate will usually require the tenant to state things like the rent amount, security deposit paid, and any other fees.
- Modifications to the lease. The tenant must state whether the lease has undergone any modifications. For example, any addendums attached to the lease or any ongoing disputes.
- Landlord responsibilities. Another clarification the tenant must provide is on the landlord’s responsibilities. Specifically, they must state whether the landlord has fulfilled them or there is an ongoing dispute regarding them. An example of a dispute would be a failure by the landlord to provide the appliances mentioned in the lease. This would be a breach of the contract by the landlord, and may consequently give the tenant a right to exercise certain rights. Including, withholding further rent payments.
- Tenant responsibilities. The tenant may have to mention, for instance, where and when rent is due, as well as the acceptable payment methods.
- Subletting rules. The tenant must acknowledge whether or not they can or have already sublet the unit. If so, the details of the subletting.
- Details about lease renewals. For example, whether they have any special rights under the rental agreement. And if so, the details of such an arrangement with the old landlord.
The tenant must also acknowledge that they have complied with all terms of the rental agreement, including timely rent collection. For example, paid all rent due and not engaged in any illegal activity while at their rented premises.
In addition, there are other items that you may be able to require in an estoppel certificate that may not be in the lease. They include the following.
- Whether or not the rental unit is pet-friendly.
- Any area on the property where the tenant has exclusive use.
- Permission by the tenant to sublet the unit.
- Any parking space that is dedicated to the tenant and members of their household.
- Any agreement the tenant has with the landlord when it comes to repairs in exchange for reduced rent.
Are Tenants Legally Obligated to Fill It Out?
The answer lies in the lease. Is there a clause that specifically mentions a tenant estoppel certificate and the tenant’s obligation to fill it out upon request? Also, is there any addendum on the same?
If not, the decision on whether to fill out an estoppel certificate would be entirely theirs to make, although consulting with a property management professional could provide valuable guidance.
Conclusion
As you can see, a tenant estoppel certificate serves an important purpose when it comes to rental investing. So, when planning to make your next rental investment, make sure to require it to minimize any potential confusion or misunderstanding.
For expert help in this regard or any other aspect of rental investment, look no further than Realty Management Associates, Inc. We provide professional property management in the Greater Boise Metro area. Get in touch today to learn more!