Buying Apartments? Use This Form!

For us landlords, growing our business means adding new properties.  New property additions mean more rental units and more cashflow.  New property additions also mean more tenants.  Sometimes these tenants come with the properties we buy.  I call these tenants “inherited tenants.” 

Inherited tenants pose a special kind of risk to a buyer in a couple of ways.  First, as a buyer you are generally bound by their existing lease agreements.  You cannot just kick tenants out, raise the rent or revise other lease terms just because there is a change in building ownership.  Second, these tenants have not been through your screening process.  You really have no idea about their background or payment history.  100% occupied may not be what it seems.  So if one of these inherited tenants is a rotten egg, you may be stuck with them for a while

One way you can protect yourself as a buyer is to review all of the leases before purchase.  While I recommend doing this, I feel it does not go quite far enough.  I want more protection.  So I use an estoppel agreement as well.

Estoppel is a legal term which means someone is prevented by their own acts by claiming a right on another party.  For those of us buying investment properties and inheriting tenants an estoppel agreement prevents those tenants from making future claims on us after the property is transferred.  The agreement spells things out on the front end before we buy, thus preventing our inherited tenants from claiming something different later on.

Here is what an estoppel agreement should include:

• Tenant(s) name and who lives in the unit
• Lease term
• Renal payment amount
• Security deposit amount
• Who pays utilities
• Who owns the appliances
• If there are any pets
• If there are any problems or repairs needed
• If there are any other agreements with the landlord.

The agreement should also be signed by both the tenant and the current owner once it is completed.

Don’t think for a minute that some unscrupulous tenant will not try to claim that their security deposit was really $1,000 instead of $500, or that they paid six months rent in advance, or that they really do own those window air conditioning units.  An estoppel agreement will stop those claims cold and it will stand up in court.   

Don’t let yourself be taken advantage of during an ownership changeover.  Protect yourself and your business.  Make completed estoppel agreements a part of your purchase contract.  It’s simple and easy to do plus it may just save you a bundle.

Feel free to download the estoppel agreement I use here.