Updated November 6, 2012
What is a Tenant Estoppel Certificate (also referred to as an Estoppel Agreement)?
When a landlord places a rental property up for sale, the realtor and landlord will request a tenant to complete and sign an estoppel certificate. An estoppel certificate is used to inform a potential buyer of commercial or residential rental property of the rights of existing tenants. The certificate requests information about rental amount, lease terms, protected tenancy status, oral agreements with the landlord, amendments to written lease agreements, promises made by the landlord, and agreements with respect to payment of utilities, e.g. water and gas. In short, the estoppel agreement lays out the nature of the relationship between the landlord and tenant. The goal is to inform any prospective buyers of rental property about the rights of existing tenants.
What is the Effect of an Estoppel Certificate?
The contents of an estoppel agreement are conclusively presumed to be true and bind both landlord and tenant. Plaza Freeway Limited Partnership v. First Mountain Bank, 81 Cal. App. 4th 616 (2000). In fact, the contents of the estoppel agreement are deemed conclusive even if erroneous. Id. Tenants are bound by the contents of an estoppel certificate. Id. and Evid. Code § 622. Landlords are also estopped from challenging the veracity of the certificate. Miner v. Tustin Avenue Investors, LLC, 116 Cal. App. 4th 264 (2004) and Evid. Code § 622. Where an ambiguity exists between the estoppel certificate and the lease or other written document, courts will read the lease and estoppel together to rectify the ambiguity. Id.
What if the Realtor Does Not Forward the Certificate Onto Potential Buyers?
Realtors have a duty to provide prospective purchasers with any estoppel certificates. Civil Code § 2079.16. In addition, a buyer can recover damages against a seller and realtor who submit an erroneous estoppel certificate. Linden Partners v. Wilshire Linden Associates, 62 Cal. App. 4th 508, 531 (1998).
Am I Required to Complete an Estoppel Certificate?
A tenant must sign an estoppel agreement where the written lease contains a provision requiring the tenant to do so. Where a tenant fails to complete an estoppel certificate as mandated by a lease, the tenant can be evicted for breach of lease. Absent a lease provision, a tenant is not required to complete and sign an estoppel agreement.
Should I Sign an Estoppel Agreement?
Even though a lease may not require an estoppel certificate, there are two situations where a tenant should sign an estoppel. First, a tenant should sign an estoppel agreement where the tenant has oral agreements with the landlord that are not memorialized in writing. For example, if a landlord orally agreed to allow a tenant to have a pet, the tenant would be wise to list this in the estoppel. Other examples include agreements about payment of utilities, garage and storage, subletting, use of common areas, rent reductions, security deposit interest, and rent increases. Second, a tenant should sign an estoppel certificate if the tenant lives in a rent-controlled jurisdiction and has protection against eviction because of age, disability or terminal illness. If this applies, it is wise to talk to a tenant rights attorney or an appropriate city agency.
Updated September 2, 2010
Foreclosure in Rent Control Versus Non-Rent Control Jurisdiction
Tenant rights in foreclosure hinge on whether your unit is in a rent-controlled or non-rent-controlled jurisdiction. If you live in a property in Berkeley, Hayward, San Francisco, or Oakland, you need to first determine if you are covered by the eviction protection portion of your rent control ordinance. You likely are. In San Francisco, most rental units built before 1979 in San Francisco have eviction protection. This includes single family homes, live-work lofts, condos and multi-unit apartments. In Berkeley, eviction protections apply to most rental units, even those built after 1980. In Hayward, a unit is only covered under rent control where an owner owns five or more units in Hayward, and the unit has a Certificate of Occupancy issued prior to July 1, 1979. In Oakland, most rental units are covered by just cause eviction protections unless the unit has a certificate of occupancy after 2003.
In a unit without eviction protection, a month-to-month tenant must be given ninety-days notice to vacate. See, Federal Protecting Tenants at Foreclosure Act, 123 Stat. 1660, Sec. 702(a)(2)(B). A tenant with a long-term lease can stay in the unit until the lease expires. Id. However, if the foreclosed property is sold to an owner who intends to use the unit as a primary residence, the new owner can void the lease. Id. The new owner would still be required to provide ninety-days notice. Id. One caveat is that this protection for buyers intending to live in the unit only applies to “immediate successors in interest.” 123 Stat. 1660, Sec. 702(a)(2)(B). So, a real estate investor cannot purchase a property, rehab it, and sell it to a buyer who seeks to live in the unit. This would be seen as an attempt to evade federal tenant protections.
A new owner can also extinguish a long-term lease if 1) it was entered into in bad faith, 2) it was a lease between the foreclosed upon owner and a relative of that owner, or 3) it is substantially below fair market rent. Id.
A tenant in a rent-controlled property covered by eviction protection cannot be evicted during or after foreclosure. Courts have held that local rent control protections continue to apply regardless of state or federal law. Gross v. Superior Court, 171 Cal. App. 3d 265 (1985) and 123 Stat. 1660, Sec. 702(a)(2)(B).
As a property nears a foreclosure sale, it is typical for the lender’s representative to pay tenants to move. Many lenders will be unfamiliar with local rent control protections, so they may try illegal tactics to force tenants out or even tell tenants that they have no right to be on the property. For eviction protected tenants, a “cash for keys” payout offer is usually too low to justify a move. In non-rent-controlled jurisdictions, month-to-month tenants will receive less than tenants on long-term leases. When negotiating a pay-out, be mindful of your security deposit, security deposit interest (if applicable in your jurisdiction), and moving costs.