The Importance of the Estoppel Certificate

Take Heed of the Estoppel Certificate

These are the words for today. These words are extremely important when buying or selling income property and for agents who are working on these sales. The California Bureau of Real Estate Glossary states: Estoppel is a legal theory under which a person is barred from asserting or denying a fact because of the person’s previous acts or words.

Fortunately, I learned about this certificate on my first Real Estate Sale. This was many years ago in the beautiful city of North Hollywood during my first weeks on the job.

How I Started in the Real Estate Business

When I left the Navy in Wiesbaden, Germany, I worked for about three years for the U.S. Air Force as a Director Athletics for 17th Air Force. Then, as Director of Data Possessing for the PX Services.

I became interested in Real Estate from a famous book at that time called “How to Turn $1,000 into a Million in Your Spare Time by Mr. Nickerson”. While in Germany, I had purchased three rental properties in Milwaukee near my parents’ home in Racine.

Decided to come to California cold with a wife and three children. Passed the Real Estate, Insurance and NASD exams and when the Real Estate License came first, I went to the Forest E. Olson Company at 13747 Victory Avenue, Van Nuys, CA. I said that I wanted to sell Income Property.

Keith Wheeler, head of HR, said that I needed to have enough money to sustain myself for six months to allow time for commissions to come in. I said, “I can make it to Thursday.” So that was out.

Donald Olson, brother of Forest, said that you have a Masters in Management from UCLA, and we are thinking of starting a PM section. Would you be interested to start it on a salary? Yes. Someone was looking out for me.

So I worked on that project for about 14 months, and then I had saved enough to try selling Income Property. During my first week I was the up-person, and got a call from Tom Segar. He was one of few people that I knew in Los Angeles area.

During my senior year at Indiana University, I had completed a 3 month internship with Lybrand, Ross Brothers, and Montgomery. Tom was the Senior Accountant on a two person audit at Henshey Department Store in Santa Monica. We got along great, but I did not think to contact him.

He was calling on an ad. I told him that it was not good enough for him, but I would start looking for him personally. I also said, “If you see any ads in the papers, call me and I will get you the information.” Which he did about a couple days later.

There was a 46 unit listed with Krupnick and Fisher. I got the info and made an appointment for that night. He loved the property, was intelligent, and realized the good opportunity. So he and his wife made an as-listed offer right then. I spent a sleepless night and hurried down the next day to the listing office and got the sale.

Imagine how lucky that was! One week on the job and a 46 unit as-listed. Took a long time to close it, but it did.

Now, everything was fine, but when Tom took over the building, he gave a notice to all the tenants about their rents and deposits. Two tenants paid a total of $800 in pet deposits after they moved in, but they were not on the leases we reviewed. The previous owners said something to the extent of buyer beware.

How Does the Estoppel Certificate Apply?

Tom now asked me and the Olson Company to make amends. I went to Chuck Hilton, FEO’s attorney. He said there was no problem, just show them the estoppel certificates that each tenant had signed and put into escrow. That aspect was never covered in any of my training. We did not have those puppies.

Immediately, I went to Forest and asked for advice. He said, “Let’s go 50-50 and just forget all the legal work which will cost lots.” So my first brush with these documents cost me only $400, so it was a cheap lesson.

A Lesson about Buying and Leasing Property

Therefore, if you ever buy a property, put in the agreement that all tenants will give a statement about their rents, all deposits, parking spots, utilities, furniture, etc. etc. etc. Owners will also give you a statement, and if there any any differences, settle them before closing. This should be done, even if, it is a rental house.

I think if you are ever selling a property, it would be a good idea to give the buyer estoppel certificates to eliminate future problems. Also, if you own buildings, be sure that your leases state that tenants will give the certificates when requested on a sale. The CAR Lease Agreement has this stipulation.

So remember the words Estoppel Certificate, the money you save might be your clients and yours. Now, you be careful out there.

Footnote: When I closed the sale, I took a one-month vacation to Wisconsin, came back and started Duane Gomer, Inc. They call me self-employed, but sometimes it seems more like unemployed with overhead.

See you at closing.