During the due diligence stage of a real estate or mortgage process, an estoppel letter might be required. However, unless you’re a professional attorney or legal expert, then understanding what an estoppel letter is can be quite confusing. Here, we dive deep into what an estoppel letter is, when it might be used and what information it tends to include.
What is an estoppel letter?
In short, an estoppel letter – sometimes known as an estoppel certificate – is a document signed by a tenant stating the current status of their lease in association with that property. In the estoppel letter, the tenant usually confirms details of the lease, including the rent amount and security deposit for example. An estoppel letter can prevent a person (in this case, the tenant or landlord) from making a claim or going back on their word.
Consider an estoppel letter as a binding document that confirms any terms and conditions of the lease agreement between a landlord and tenant. It proves to prospective buyers that the current owner is on the same page as the tenants regarding any details of the lease (most specifically anything relating to money). And therefore, the contents of the letter can help third parties like prospective buyers or mortgage lenders conduct due diligence – while helping to prevent any concerns or worries they might have that cash flow is secure.
When would an estoppel letter be required?
- When a person is selling a rented property: If a person is selling a rented property, then they might be required to request an estoppel letter from their tenants – so the new buyer has a clear understanding of the leases they will be inheriting
- When somebody is lending money to fund a property investment
- If an investor is refinancing a property, then they might be required to collect estoppel certificates from the tenants
It’s worth noting that the types of property that might require an estoppel letter include:
- Commercial real estate
- Multifamily properties (including Homeowners/Condo Associations, or any housing setting whereby multiple separate housing units are contained within one building, or several buildings within one complex)
- Residential families
What information does an estoppel letter include?
In most common cases, an estoppel letter includes:
- The start (and in some cases, end) date of the lease
- The date to which rent has been paid
- Confirmation that the tenants are paying what the landlords say they are
- A verification there are no defaults OR a statement of the defaults that have been made by the landlord or tenant
- Verification that the lease is unmodified OR, it’s a statement of all modifications that have been made to the lease
- Confirmation that there are no pending disputes with any of the tenants that could potentially affect cash flow to cover loan payments
Do you need an estoppel letter?
While an estoppel letter is not required in every real estate transaction, we would recommend it. Ultimately, an estoppel letter creates additional security for landlords, tenants, investors, and lenders. If you are a real estate professional and require support with closing property transactions, including specific advice and information surrounding a Homeowners Association (HOA) estoppel letter in Florida, then contact the experts at Real Res.
