Estoppel Certificates (1)

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					Estoppel Certificates
Estoppel, to the non-initiated, sounds more like the newest toy in the Pentagon's vast array of
secret weaponry and armaments, something that belongs more to Area 51 than the real estate
world, or perhaps 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 better...
In Real Estate, an "Estoppel Certificate" is a document signed by the Seller, under oath, confirming
the representations made by the Seller in the Contract of Purchase 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.
For instance, when purchasing a rental property - whether a house or an apartment building - 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 effect and covering the property herein bought and sold. Seller warrants
that the term(s) of the tenancy is/are for a period of ( insert length of tenancy ), the monthly rent(s)
is/are ( insert amount ) and that the last rental increase was on ( insert date )".
What happens if, by the time all the subjects are removed (and the property 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 property 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 covering the
existence and confirming the validity at law of the subject matter and terms of the tenancies herein.
Failure by the Seller to provide such Estoppel Certificate in the aforesaid time-frame will render this
Contract 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 reason for Estoppel Certificates to exist in Real Estate is to be found in the equitable Doctrine Of
The Promissory Estoppel. Under this doctrine, one party is barred and prevented from withdrawing a
promise made to another 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 expected to take greater care to verify
the contents of the agreement and their validity at law, before consummating it.
The American Law Institute goes one step further by discerning between equitable and promissory
estoppel in its Restatements of Contracts as follows:
"Equitable estoppel is distinct from promissory estoppel. Promissory estoppel involves a clear and
definite promise, while equitable estoppel involves only representations and inducements. The
representations at issue in promissory estoppel go to future intent, while equitable estoppel involves
statement of past or present fact. It is also said that equitable estoppel lies in tort, while promissory
estoppel lies in contract. The major distinction between equitable estoppel and promissory estoppel is
that the former is available only as a defense, while promissory estoppel can be used as the basis of
a cause of action for damages. The American Law Institute's website can be found at
http://www.ali.org.
All the foregoing simply 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 contract is entered into and ratified by
the parties, at which time Real Estate suddenly becomes all too deadly serious.
Luigi Frascati

Burbank real estate

				
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Description: For instance, when purchasing a rental property - whether a house or an apartment building - an