What Is Estoppel?
Estoppel is a legal principle that prevents someone from contradicting facts previously acknowledged as true, or claim subsequent modification of contractual terms previously agreed to.
When Is Estoppel Useful In Real Estate Investment?
The legal doctrine of estoppel becomes very significant in commercial real estate transactions, particularly for buyers and lenders of investment properties. Both buyers of investment properties and lenders who finance the purchase of those properties depend on a complete picture and the accuracy of the facts presented to them to make an accurate assessment of the risks, returns and commitments involved in owning an investment property.
The problem is surprises and misunderstandings can have adverse consequences to mortgage lenders and investment property buyers alike. A typical example would be a tenant who claims an amendment to a lease that reduces the rent for the tenant, or commits the landlord to some increased expense.
What Is An Estoppel Certificate Or Estoppel Letter?
The solution to the problem is an estoppel certificate or an estoppel letter. In a real estate investment transaction, an estoppel letter is a document signed by each tenant that certifies leases, lease amendments, agreements, and other commitments between the landlord and the tenant have been disclosed and specified.
The tenant is thus prevented from making additional preexisting claims once the buyer takes ownership of the investment property.