08 Jan What the hell is an Estoppel (and why is it important in your subletting agreement)
Estoppel is a legal term that’s important for landlords and subletters to be aware of. Yet, many people have no idea what it is.
Being a landlord or a short-term rental host isn’t always easy. There’s a lot of legal and tax considerations that come with the job. Savvy hosts should educate themselves on important legal considerations. This will help you avoid any future issues.
Estoppel is a legal principle. It prevents a person from alleging facts that are different from previous claims. In plain terms, Estoppel prevents someone from changing their mind.
What is an Estoppel?
In real estate, an Estoppel certificate is a signed statement by a person. It certifies, for another person’s benefit, that certain facts are correct. The Tenant Estoppel Certificate might be called a “Rental Information Questionnaire” or a “Tenant Rental Information Declaration.”
Estoppel Certificates & Subletting Agreements
If you plan to start an Airbnb sublet business you should be aware of Estoppel certificates. Finding landlords who agree to let you sublet is the first step. I cover that process in other blog posts. You can also purchase and download my Landlord Outreach Email Template if you need help.
Once you’ve convinced a landlord to let you sublet, you will need to sign an agreement. The basic agreement is usually a very short consent document. This could be as short as a single sentence. But this consent agreement is often not comprehensive enough to protect either party. An Estoppel is, therefore, an important part of any subletting agreement.
An Estoppel can protect you if a landlord changes their mind. The Estoppel should include any verbal agreements made with the landlord. For example, you may have made side agreements with your landlord. These may not be in your lease or they may contradict the lease. This could be something like agreement about parking, extra storage, pets, exclusive use of a yard, and so forth.
The most important agreement for our purposes is the right to sublet or have a roommate. To prevent disputes, you want to include this clearly in your Estoppel certificate.
An Estoppel also protects the landlord, who has more at risk if things go wrong. And things can go wrong. There are many legal issues in subleasing.
How I lost $3,500 because I didn’t sign the estoppel.
This is a true story and I want to help you to avoid a similar situation.
A few months ago, I picked up an awesome 2-bedroom property in a triplex. The apartment was two blocks away from downtown (restaurants, coffee shops, co-working spaces, etc), a 10-minute walk from public transportation, and next to a few startups that were our ideal clients.
The rent was higher than what I ideally wanted to pay, but I justified it to myself and moved forward. My move-in cost was first month rent + a $3,500 security deposit.
A few weeks after we moved in, we got the place ready and received a few new guests. then my landlord started asking me if he could show the property to his “investors.”
I, of course, didn’t object even though the unit was pretty booked up. The challenge was in coordinating with my landlord, their investors, my co-host, cleaner, and guests.
I thought, “Cool, this is a great way for me to build a good relationship with them so I could potentially tap into more of their inventories in the future.”
But as weeks would go by, the volume of requests increased. At one point, they wanted to show my unit to potential “investors” twice in one week.
This got me worrying. I wondered exactly what was going on. So, I did the adult thing and texted them to ask. My first question was, “Hey guys, you’re not thinking of selling this property, are you?”
A few hours later, they texted me back with a reassuring answer, “No, we just think your unit is really pretty and want to showcase it to our investors.” I thought, “Great! I’m glad someone likes the work we’ve done.”
But that was far from the truth!
A couple of weeks went by and I got a strange text from them. They asked me to sign an Estoppel. I was confused and stunned. What the hell is an Estoppel? This was the first time a landlord had ever mentioned an Estoppel (live and learn!).
So, I started to do some research on the legal implications of an Estoppel, why I would need to sign it and the consequences of it if I didn’t sign it.
Essentially, they sold the property to a new “investor.” And the “investor” didn’t want me to sublease the property, which meant that I would forfeit the security deposit if I didn’t sign it.
So, I told them I wanted my rights to sublease secured on the Estoppel before I would sign it. They indicated that they were not going to allow me to continue to sublease. “Then I’m not signing your Estoppel,” I told them.
Ugh. I lost $3,500. But it was better than losing the rights to sublease, finding a new unit, and moving everything out..
I’m still a little angry that my ex-landlord didn’t tell me the truth and actively mislead me. After this incident, I decided to seek professional assistance from a real estate lawyer. If something like this were to happen again, at least I wouldn’t lose any money.
This is why I created our Residential Subletting Agreement. This agreement will minimize your risks, especially in this type of situation.
Do You Have To Sign An Estoppel?
In some cases, a tenant must sign an Estoppel certificate when a provision in the lease requires them to do so.
A tenant is not always required to complete and sign an Estoppel agreement. But it is in your best interest to fill out and sign an Estoppel certificate, even if it’s not required by the lease.
If your original lease does not allow subletting, you’ll want to sign an Estoppel. Otherwise, a landlord may deny or change his mind about subletting. This could lead to eviction or other legal consequences.
An Estoppel benefits tenants because it secures any agreements made with the landlord. A properly executed Estoppel should present no risks to you as the tenant. Problems arise when the Estoppel is not consistent with the original lease. These inaccurate Estoppels are primarily related to rent-controlled jurisdictions. Do extra research and your due diligence to ensure you can sublet. Rent-controlled districts have additional regulations for both tenant and landlord.
How Much Does An Estoppel Certificate Cost?
Estoppel costs differ by state and situation. You can expect to pay between $200-$500 dollars. In some cases, you will need a lawyer or the property HOA to draw up the agreement.
Usually the landlord will cover the costs of an Estoppel letter. But this could be a bargaining point. If you request an Estoppel to sublet a building for Airbnb, then you may offer to cover the costs. Especially if a landlord is reluctant to spend extra time or money adding an Estoppel to the lease.
For more information on Residential Subletting Agreements check out my Template. This document has 15 pages worth of clauses. It is all written in a landlord-friendly language but still gives you maximum protection.