If you are a multifamily investor, consider the use of estoppel certificates. What are they, you might ask, and why are they important?
Quite simply they are a legal document that the tenant signs that states the terms of his tenancy. Items such as rent, term, security deposit and number of keys are included along with the tenants contact info.
This is important as it is considered legally binding by the courts. Obtaining these certificates from the tenant means that you can prevent misleading financial information from the seller. Building values are often calculated off gross multiples of the income, sellers often seek to show the highest rents possible.
Obtaining these certificates puts the terms of the tenancy in the tenants own handwriting as he signs them. This also protects you from a number of other transgressions such as management company skimming, and tenants claiming different terms than the seller represented.
The definition of estoppel certificates is “the barring of a person, in a legal proceeding, from making allegations or denials which are contrary to either a previous statement or act by that person”
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