What is an Estoppel?

When you sell or refinance your building, you will usually be asked by the prospective buyers or the prospective lender for estoppels to be filled out by your tenants. It is a simple form, confirming the current rent deposits, due dates, and security deposits.

WHAT IS AN ESTOPPEL? An estoppel is a document confirming the terms of the rental agreement by the tenant. It will usually be required at the beginning of the sale, as part of the buyers’ due diligence, and by the lender on a purchase or a refinance.

WHY ARE ESTOPPELS IMPORTANT? They can make a difference because the terms of the original rental agreement, which will also be required, may have changed. The rent may have changed up or down, the security deposit could be more or less. For instance, a pet deposit may have been returned, or the tenant may have used part of the security deposit toward some back rent. It could also have increased, such as a new pet deposit. The estoppel will also clarify who is actually on the lease. Roommates may have changed, a couple may have gotten a divorce, remarried, or had children. This is also a good way to determine if another person, not on the lease has moved in. In case you have to do an eviction, you will need to know all parties, as well as for your day-to-day operation of the building. Unknown parties living in your building can cause all sorts of problems.

WHAT FORM IS BEST? California Association of Realtors, Realty Publications Inc., and many others have excellent forms, which can be purchased online. It is recommended that you consult with your real estate attorney, as he or she may recommend a published form, or do their own. Another source is the Apartment Owners Association. Most furnish pre-printed forms for members’ use. I prefer to use my own form, which asks for the minimum information such as names of all occupants, unit number, move-in date, security deposit, and current rent

It’s always best to check with your real estate attorney before you design your own form, but mine has been great for me. I usually fill out as much as I can then let the tenant review and sign. I have found that the easier you make it for the tenant, the easier it will be for you. You can then include the estoppels with your other due diligence items, such as rental agreements, utility bills, and profit and loss statements, for the buyer or the lender.

“Good luck is a residue of preparation.” Jack Youngblood

What we at PRS PROPERTIES CAN DO. We can show you the forms we use, as well as those available pre-printed so that you and your attorney can choose what works best for you. We can give you a good idea of what your building would sell for in its present condition. We can do a rent survey, to show you whether you are under-valuing your rents and what other owners with buildings around your property are charging. Even with rent control restrictions, it may be time to raise rents before the sale. We can also recommend experienced licensed contractors who can perform any repairs or installations you may need prior to selling. We can also look at your building for other changes that might allow you to get a higher value in order to create value without huge expenses for your building. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.

We always have many investors who are looking for “as-is” properties and are willing to purchase with low rents, a moratorium, or even with a problem tenant in place. We have put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are in 1031 exchanges and need to identify a replacement property before their 45-day identification period runs out.

Should you decide to put your property on the market, we will put together an aggressive, targeted, and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.

Remember- KNOWLEDGE IS POWER!