Estoppel, to the non-initiated, sounds more like the latest toy in the Pentagon's vast array of hidden weaponry and armaments, something that belongs more to Area 51 than the real estate world, or possibly the latest scandal to permeate Capitol Hill. "Cia's Probe Leak: The New Martin Lochheed F-22 Supersonic Estoppel!", one might envision reading one day in the front page of Usa Today. But readers of my Articles know great ...
In Real Estate, an "Estoppel Certificate" is a document signed by the Seller, under oath, confirming the representations made by the seller in the covenant of buy and Sale. The reasons for the Buyer to request an Estoppel Certificate are twofold. First, to confirm the Seller's representations as stated above and, secondly, to bar and prevent the seller from later on asserting a fact, that is inconsistent with the terms of the Contract.
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For instance, when purchasing a rental asset - either a house or an apartment construction - an investor might want to insert the following two conditions precedent ('subject to' clauses). The first might read:
"Subject to the Buyer by ( insert date ) reviewing and approving the Residential Tenancy Agreement(s) presently in succeed and face the asset herein bought and sold. seller warrants that the term(s) of the tenancy is/are for a duration of ( insert distance of tenancy ), the monthly rent(s) is/are ( insert estimate ) and that the last rental growth was on ( insert date )".
What happens if, by the time all the subjects are removed (and the asset is virtually sold) and the time the investor completes the transaction, the tenant is run over by a bus and dies? In some instances the market value of the subject asset may be altered, as in the case of an investor purchasing a professional building. This is where an Estoppel Certificate fits in.
The second clause might read:
"Subject to the Buyer, after all the other subjects herein are removed but in no event before two weeks (or any other time) prior to completion and no later than one week (or any other time) prior to completion, receiving, perusing and approving an Estoppel Certificate ratified by seller face the existence and confirming the validity at law of the subject matter and terms of the tenancies herein. Failure by the seller to furnish such Estoppel Certificate in the aforesaid time-frame will render this covenant null and void, and all deposit monies until then paid by Buyer will be refunded to Buyer forthwith with interest accrued thereon, if any there be".
The suspect for Estoppel Certificates to exist in Real Estate is to be found in the equitable religious doctrine Of The Promissory Estoppel. Under this doctrine, one party is barred and prevented from withdrawing a promise made to someone else party, if the latter has relied on that promise and acted upon it. All the more so, since contracts in real estate are made 'under seal' (deeds) and, as such, the rule of evidence arising from the special status of a deed is that the parties are foreseen, to take greater care to verify the contents of the deal and their validity at law, before consummating it.
The American Law produce goes one step further by discerning between equitable and promissory estoppel in its Restatements of Contracts as follows:
"Equitable estoppel is inevitable from promissory estoppel. Promissory estoppel involves a clear and specific promise, while equitable estoppel involves only representations and inducements. The representations at issue in promissory estoppel go to hereafter intent, while equitable estoppel involves statement of past or gift fact. It is also said that equitable estoppel lies in tort, while promissory estoppel lies in contract. The major incompatibility between equitable estoppel and promissory estoppel is that the previous is ready only as a defense, while promissory estoppel can be used as the basis of a cause of performance for damages. The American Law Institute's website can be found at http://www.ali.org.
All the foregoing plainly goes to prove, once again, that the discipline of real estate wheeling and dealing is littered with rubbish all the way - until such time as a covenant is entered into and ratified by the parties, at which time Real Estate suddenly becomes all too deadly serious.
Luigi Frascati
Estoppel Certificates
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