Estoppel Certificate
When you are considering buying any type of rental, you must understand the two words Estoppel Certificate. You want to know the exact conditions of all tenant agreements. The best place to get this information is from the tenant.
Wikipedia says: “An estoppel certificate provides confirmation by the tenant of the terms of the rental agreement, such as the amount of rent and security deposit, and the expiration date. I would add paid to date, personal property, pets, occupants, and any other claim. You also make a condition of the purchase the right to examine all leases and other agreements. But leases do not tell all.
Example: Many years ago on my first month of working in the Income Sales Department of Forest E. Olson in Canoga Park (corner of Sherman Way and Topanga), I was extremely lucky and got an as-listed offer on a 46 unit N. Hollywood Apartment House at first showing. We looked at the 46 leases and examined 92 bathrooms. The buyer was a CPA whom I had met years before and he was thorough.
This sale allowed me to start my own business, but I remained in close contact with FEO (never burn any bridges). Two years later my buyer (Tom Segar) called with a problem. A tenant had a signed statement from the previous owner showing an additional deposit of $400.00 for a pet. This was made after the lease was allowed to roll over. Tom, being thorough, contacted every holdover tenant and found another. He wanted $800.00 for the two deposits.
Does not sound like a lot, but $800.00 in 1963 has the purchasing power of $6,854.00 today. Went to talk to Chuck Hilton, the FEO attorney. He said that it was probably an innocent error by the seller and the cost of chasing the seller would be costly. He then said the words that I have heard so many times in Real Estate. Split it 50-50. We did and since that time I have gotten the right to examine leases and the right to receive an Estoppel Certificate from any tenants. Even on a single family rental.
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