Finance Roll

Rental Income Might Not Be What the Owner is Representing?

Estoppel agreements insure you that the rental income being presented will be delivered. Suppose you're a prospective multifamily apartment buyer, and you purchase your first apartment building. The good news is that the apartments still have tenants. According to the lease summaries and rent rolls provided by the sellers, the tenants pay a combined $50,000 per month.

Now the bad news. You first month rolls around and the all of a sudden your income is now a combined $25,000 per month! What happen?

Okay, so what did the you do wrong? You and the commercial lender should have obtained an what is known as an estoppel agreement from all the tenants before making the loan.

What the heck does estoppel mean? Estoppel is a a rule of evidence whereby a person is barred from denying the truth of a fact that has already been settled. An Estoppel agreement is a form given to the actual renter of the unit and filled out with the respective rent being paid.

Estoppel agreements are used in various commercial properties where you would have people or companies renting space from from a landlord. It insures that the rental income records being produced by the seller are accurate and up to date. Some lenders will require this to be done as a condition of granting a loan on the property. Regardless of any paperwork or promises made by the seller of a property, a Estoppel agreement should always be fully executed and verified against any and all income statements.