What Does Estoppel Mean in Real Estate?

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What Does Estoppel Mean In Real Estate?

What Does Estoppel Mean in Real Estate?

When it comes to commercial real estate and passing your real estate state examination, one of the most important documents you will encounter is the tenant estoppel.

What does estoppel mean in real estate? In short, it is a legal term that prevents someone from taking a position that is contrary to what they have previously stated.

For landlords and tenants, an estoppel certificate or letter provides verification of the terms of the lease agreement. It is an important document for both parties involved in a lease transaction.

In order for an estoppel certificate to be binding, it must contain certain information such as the identity of the parties involved, a description of the property leased, the term of the lease, and any modifications or amendments to the lease.

The certificate should also state whether or not rent is currently being paid on time and if there are any outstanding claims or defaults under the lease agreement.

If you are a landlord, you will want to require your tenants to provide you with an estoppel certificate prior to entering into any leases.

This will protect you from any misrepresentations that the tenant may make about the terms of the lease agreement.

For tenants, it is important to review the estoppel certificate carefully to make sure that it accurately reflects the terms of your lease agreement.

Example of an estoppel in real estate

As an example, let's say that you are a tenant who has been leasing commercial space from a landlord for the past five years.

Your lease agreement is up for renewal, and you have been in negotiations with the landlord about the terms of the new lease.

The landlord has agreed to give you a three-year lease with a three percent increase in rent each year. You have verbally agreed to the terms of the new lease and have told the landlord that you will sign the new lease agreement.

However, before you sign the new lease agreement, you receive an estoppel certificate from the landlord that states that the term of the lease is only two years with a five percent increase in rent each year.

You would then be able to refuse to sign the new lease agreement because the landlord has misrepresented the terms of the lease.

5 things you should know about estoppel

Here are five things you should know about estoppel certificates:

  • Estoppel certificates are binding legal documents.
  • They are used to verify the terms of a lease agreement.
  • They can protect landlords from misrepresentations by tenants.
  • Tenants should review estoppel certificates carefully.
  • They can be used in lease renewal negotiations.

Conclusion

When studying for your real estate exam you should know that estoppel is a legal term that prevents someone from taking a position that is contrary to what they have previously stated.

For landlords and tenants, an estoppel certificate or letter provides verification of the terms of the lease agreement.

It is an important document for both parties involved in a lease transaction.

Now that you know what estoppel means in real estate, you will be able to identify it when you see it on your exam.

If you want to see some examples of questions that will be on the actual real estate exam, check out our free real estate practice exam. We have been named as the best real estate exam practice for 7 years in a row!

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