Every so often you may hear the term “estoppel” [pronounced “ee-stop-el”] thrown around in connection to real estate transactions. Estoppel is the idea of stopping someone from asserting a claim based on previous statements or actions. It’s the legal world’s way to hold someone to their word. If a person states they are happy with the condition of the property, they are “estopped” from claiming otherwise [assuming no facts change]. One of the classic examples is estoppel by deed. Imagine a Seller sells a vacant plot of land to Buyer, but the Seller was lying and didn’t actually own the vacant plot of land. Buyer gets the land through a warranty deed and the transaction is done outside the normal channels, no title report is ever done, Buyer is none the wiser. Some time after the Buyer’s purchase, Seller inherits the vacant plot of land from their parents. Title would be treated as immediately passing to the Buyer, because the Seller already sold that specific land to the Buyer, and the Seller is estopped from claiming that the Buyer did not purchase the land from the Seller. Basically, Seller cannot deny the truth of the deed transferring the land.
Estoppel certificates are used to solidify an oral lease into something in writing. When the tenant affirms through an estoppel certificate that the lease was month-to-month at $500/month, they are estopped from later claiming it was a fixed term lease, or claiming that the lease was only $300/month. The tenant, by signing the estoppel certificate, is functionally saying “these are the terms of the contract as I know them. I agree to be held to these terms.” Without the estoppel certificate, the tenant will still be a tenant, it’ll just be harder to know the precise terms of the lease.