Estoppel - WHO gives to tennant?

Question

Need a simple answer from my experienced multi-family investors.  I'm about to do my first multi-unit deal and I need to verify the info current owner/seller is telling me.  I know this is done with an estoppel agreement.  Thing I DON'T know is:  WHO gives this to tennant?  Seller or Buyer?  I know this is training wheels kind of question, but please help me out with your knowledge!  Thanks!  - Rob

Joe Splitrock · Answer

Prior to closing, the seller or sellers management agent should be the only one interfacing with tenants. Estoppel is important to make sure there is no misunderstanding about rent or deposit amount. If there is a property management company involved, I would feel more comfortable. The big risk is some owners make weird verbal agreements with tenants. They will "take deposit" for rent and leave the tenant with a $0 deposit balance or they raise/lower rent without using paperwork.

That is nice finding a 50 house deal, how did you find that one? Just curious.

Robert Borer · Answer

Thank you @Steve K. - great to get your perspective and wisdom!

Evan Polaski · Answer

@Robert Borer in my experience estoppels are very uncommon in residential (multifamily) real estate.  They are very common, and mandated by lenders most commonly, in commercial leases.  Are you wanting estoppels, or is someone else mandating you get them?

Now to your question: who physically delivers to the tenants is typically outlined in the contract, but most common is the seller.  The buyers lender will often have language they want on the form, then the forms are sent through the seller, since the seller is the actual party to the current lease.  In commercial leases, there is commonly language mandating the tenant execute an estoppel upon request.  Anchors and national tenants will often have a form estoppel that is an exhibit to their lease.

In residential, a lease audit is typically performed versus estoppels.  Residential leases are far less complex than commercial leases, and most of the time, depending on how long seller has owned the asset, all leases will be uniform with the exception of lease start, end, rent and unit.

Evan Polaski · Answer

@Robert Borer, I spoke with some of my commercial broker friends, plus my own experiences.  The brokers' words were: I have never seen an estoppel in any of my apartment deals.

By all means, go for it.  There is no harm in having seller ask for them.

Steve K. · Answer

@Evan Polaski I’ve seen estoppels done on EVERY apartment deal I’ve done, from 2-36 units, so it must be market dependent. OP, you should include the requirement for seller to provide estoppels in your purchase agreement, under required due diligence docs. You provide the form and the seller/ their management company/ whoever currently communicates directly with tenants needs to have the tenants fill out the estoppels and provide to you during your due diligence period. It should be signed by both tenant and seller/ their representative. The purpose is to verify that the rent amounts stated in rent rolls are current and accurate, that the security deposit amounts to be transferred at closing match what the tenants have provided, that the number of occupants/ pets etc. in the unit match what’s in the lease, and that there are no other “side agreements”/ verbal or handshake agreements between the tenants and current owners/their representatives.

Peter Nikic · Answer

here's your answer

Benjamin Magnie · Answer

As an agent, some of my buyers are fine to see the leases and current rent rolls, and other buyers request tenant estoppels for every building I help them buy.

Before I was an agent, and we were building our own portfolio, we just operated off of the seller's rent rolls and leases. In retrospect, that was probably putting a bit too much trust in the other side. A bit like shaking someone's hand and taking their word for it.

Now as an agent, I think estoppels are a great idea. It is an extremely easy document for anyone to fill out and ensures there are no confusions or misunderstanding after closing.

The standard contracts we use in Florida do not stipulate who specifically should present it to the tenants, so it could be the Seller, the List Agent or the Property Manager, depending on who is involved and what is most convenient.

Hope this helps. Let me know if you have any other questions. Congrats and good luck on purchasing the portfolio!

Douglas Snook · Answer

The seller (and or their real estate agent) should be presenting the estoppel to the tenant as they know the info for each tenant.

Also they should be signed by both tenant and seller (or management company that will also vouch for the info).

Allicyn Aubut · Answer

I just did 2 multifamily deals with existing tenants, both with estoppels.  The first, the seller had them sign prior to closing without being requested.  The second instance, we requested that they be signed in the P&S prior to closing because the tenants are not paying and will need to be evicted and we wanted to make sure they had no claims against the prior owner to make the eviction process less messy.  In both cases, it was the sellers responsibility and the agent got it done.

Robert Borer · Answer

Thanks @Douglas Snook - appreciated!

Estoppel - WHO gives to tennant?

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