‘Estoppel agreement’ puts casual deals, promises in writing

Question: The building I live in is being sold and the manager gave me an estoppel agreement to sign. What is it for? Should I sign it?

Answer: An estoppel agreement is a document that details a host of promises and conditions, oral and written, made between the tenant and owner.

Usually a page long, this fill-in-the-blank-type certificate is a comprehensive list of pre-existing conditions, agreements and legal promises made between landlord and tenant. Basics, such as the original date of lease, current rent, due date and the amount of security deposit are included. Also covered is information about which appliances are included and who pays for utilities.

“Estoppel” means “to stop, prevent or bar.” The idea is to detail what the rental situation is and value the investment based on the information provided as of the moment the document is signed.

The estoppel agreement provides investors with vital information that determines whether the investment is a boom or a bust. Evaluating a rental property involves more than just crunching the numbers, since residents are part of the equation too. Aside from documenting rental and security deposit amounts, landlord obligations must be documented too. Parking issues and promises made by managers or landlords to tenants could cost the new owners thousands of dollars.

Just a decade ago, a copy of the lease was the only paperwork provided as part of the disclosure process for escrow. Today, buying rental property has grown more complex because of the vast network of laws, codes and tenant rights that apply to many properties.

In California, requiring a signed estoppel agreement from tenants and owner/managers is often part of the standard income property contract and required in some tenant leases.

Why aren’t leases enough for the new owner?

Today’s investor needs to know about pre-existing obligations that include laundry room contracts and promises of free rent.

Tenants benefit because verbal details -- such as, “The owner said we could keep three dogs and promised us two parking spaces” or “We were promised a month’s free rent” -- are included in the agreement.

Eviction issues can hinge on lease or estoppel details too.

What if the owner allowed a pet the lease forbids? Or told a tenant the rent can be late?

Lawsuits have emerged when tenants were told they had first rights to purchase a property and these rights were ignored at sale time.

By disclosing any private details, documentation can help avoid misunderstandings.

Sometimes properties are being sold by family members who don’t know about rental promises or that multiple managers have come and gone over the years. In cases such as this, estoppel information comes in handy for parties on both sides of the equation.

Besides the bread-and-butter basics that confirm lease details, any changes, such as a sublet arrangement or an added roommate, are included.

What if the original tenant moved out?

Those who sublet may be able to protect themselves when filling in the space on the form for current tenants. This could protect a resident who may not be on the lease but does pay rent and live on the premises.

One of the most important spaces on the form for the tenant is the one that begins: “There are no verbal or written agreements or understandings between landlord and tenant with respect to the premises, except for the following....”

That’s the tenant’s chance to fill in any verbal modifications, promises or rights granted. If the tenant was promised anything not included in the lease or rental agreement, it should be spelled out here.

By the way, lenders now rely on the details of the agreement too.

Before signing on the bottom line, be sure to read the fine print and check that the information on the entire form is correct. If you’re unsure about your rights or how the particulars are written, you may want to contact an attorney for explanation.

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