Real estate investors selling residential rental properties often prepare a tenant estoppel as a disclosure document for potential buyers to review. Here is a question from one of our social media followers that illustrates the role of estoppels in real estate sales:

“I’m selling a rental home and the buyer asked for a tenant estoppel as a condition for closing escrow. What is it and why should I provide one?” N.S., Walnut Creek, CA

A Tenant Estoppel Certificate is commonly provided by sellers of apartment buildings, but it can also be used when selling tenant-occupied single family homes and multi-family properties with two to four units. It is a standard form with which the tenant acknowledges the general terms and status of their lease. A copy of the lease is usually attached to the estoppel certificate. Form content may vary, but the estoppel document is usually one page that verifies:

• • A lease is currently in force.

• • Type of lease (annual or month-to-month) and start – end dates.

• • If any other agreements have been entered into by landlord and tenant, written or verbal (e.g. resident manager agreement).

• • Current rent amount and any other payments tenant is obligated to make.

• • Amount of the security deposit being held by the landlord.

• • Tenant’s current rent balance, i.e. that rent is not past due, or if it is past due, the amount owed.

• • Personal property included with the rental, such as refrigerator, clothes washer or dryer, etc.

• • Who is responsible for exterior maintenance, pool service (if applicable) and landscaping.

• • Tenant is currently occupying the property (it has not been sub-leased to someone else and there are no occupants other than those identified in the lease).

• • Tenant is not presently violating any terms of the lease; if violations have occurred, tenant acknowledges receipt of a notice of violations from the landlord.

• • • If tenant has notified the landlord of any problems with the property.
  • Tenant has not altered the grounds or structures.

Tenant estoppel certificates are not a requirement unless the buyer makes them a contractual condition for closing escrow, as mentioned in this week’s question. I recommend that sellers provide estoppels and that buyers ask for them for all rental property sales. The estoppel provides an additional layer of disclosure that clarifies the terms of the lease and any issues relating the tenant occupancy.

Since the estoppel may contain sensitive personal information, I suggest estoppels not be made available to buyers until a purchase offer has been accepted. They should be reviewed during the inspection period.

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