Monday, February 22, 2016

The 5 W's of Tenant Estoppel Certificates

So you’ve purchased an Income Property with 2-4-7-10 tenants, all of which are being assumed on closing date. In short, a TEC becomes a document which forms part of your closing package.

WHAT? TEC is a document signed by the Tenant which confirms the basic terms of the lease agreement in place (which presumably you have already reviewed during your due diligence, and summarizes the status of the tenancy as of the closing date. It’s primary purpose is to verify the basic details contained in the lease, and to ensure the terms have not been modified since the lease was initially signed.

WHEN? The document is prepared by the Purchaser’s lawyer (in most instances) and provided to the Tenant for signing. It needs to be provided on or prior to closing and often can hold up closing if not available with all the other closing documents.

WHY? Purchaser wants to ensure that the current status of the tenancies, is as presented via the leases. Other matters typically outlined will include – deposits held, confirmation that all rental payments are current, any outstanding obligations with the present landlord (seller), no lease assignment exists etc.

WHO SIGNS? The Tenant and more specifically the actual corporation/individual shown on the lease agreement. The more detailed the TEC, the more advance notice you should give the Tenant to make sure it gets signed in a timely fashion.

WHO RECEIVES? The TECs are forwarded to the Purchaser (or their lawyer) to review as part of the closing process. Depending on the amount of financing, often the lender can also be party to the TEC and certain provisions shall ensure the lender’s rights with respect to their mortgage security.

In addition, a TEC will often include a DIRECTION to the tenant, specifying where future rental payments are to be made and the Buyer’s (New Landlord) address for service. It’s a good idea to incorporate the requirement for a TEC/DIRECTION within your Purchase and Sale Agreement, to make sure the Seller is aware that it is required at closing.

This is normally a matter for the lawyers, but it’s always best discussed early in the process of buying.

Any past experiences with Estoppel Certificates that you would care to share with us – either as Buyer or Seller. Just a click/call away from discussing the opportunities here in Windsor-Essex!

Mark Lalovich
Office: (519) 966-0444
Cell: (519) 259-5434

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