If you’ve purchased a commercial or residential condo, you would have encountered an estoppel certificate.
There are many reasons for obtaining a condominium estoppel (the information I discuss here is applicable only to single- and multi-tenant investments, excluding multifamily rentals):
* they provide insight into the project’s reserve fund;
* illustrate if there are any unpaid contributions or arrears;
* and determine if its bylaws and policies are in good standing.
Let’s look at the importance of obtaining estoppel certificate(s) during your investigation of an investment property.
A recent example
A landlord and tenant negotiated a tenant improvement allowance which was to be paid to the tenant once they had completed their improvements. The tenant was a national company with a few different departments handling various elements of the lease administration.
The tenant did complete the work but somehow forgot to thereafter ask for the agreed-upon amount of cash. The property was subsequently sold to another investor.
The investor did not obtain an estoppel certificate from the tenant during its due diligence period.
Sometime after the sale, the tenant realized they had failed to request the tenant improvement amount at the appropriate time.
Had the buyer requested an estoppel certificate from the tenant at the time of purchase, they would have insulated themselves from this problem.
How open do you think the previous owner is to paying this significant sum of money after the sale?
The tenant improvement allowance was amortized into the lease, which increased the tenant’s lease payment.
The buyer does not feel obligated to pay it, because they paid more for the property due to the cap rate applied to that increased rent.
Elements of an investment property estoppel certificate
The certificate must be executed by the tenant and may include, but is not limited to, the following declarations:
* the lease constitutes the entire agreement between both parties;
* the amount of security deposit held;
* any additional signage rent;
* there is no litigation outstanding between the two parties;
* there are no existing lease defaults by either party;
* any improvements required to made by the landlord have been completed;
* any amount agreed to be paid by the landlord for tenant improvements has been paid.
We use estoppel certificates that can be one or several pages long. It typically depends on the complexity of the transaction, number of tenants involved and the sophistication of the buyer.
Getting an estoppel in place
A landlord typically does not want to go through the work and disturb the tenants until the buyer has removed all conditions.
A buyer doesn’t typically want to remove conditions until the estoppels have been provided.
A remedy can be to provide the certificates after the buyer has removed conditions, provided there is a process agreed to if something surfaces within the estoppel that requires a resolution prior to completion of the deal.
There are many issues that can surface if estoppels are not included within a commercial real estate investment sale.
If a seller is reluctant to allow this requirement to be written into the purchase agreement, treat this as a red flag.
It could be in your best interests to walk away before investing your time and money.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
