Estoppel letters


#1

The seller of the park doesn’t want the tenants to know it is sold until it has closed. Meanwhile, I’m told getting estoppel letters from the tenants is a good idea prior to closing? But the estoppel letter is a giveaway the park is being sold. Any suggestions?


#2

This is not uncommon or unreasonable really. Many of the small park sellers fear this and no doubt the larger parks owned by individuals may have the same concerns.

If the sale does not go through, the owner fears that the park will be harder to manage or rent collection will become more difficult. Kind of like managing students who are seniors in high school and have already been accepted at college.

I comes down to us acknowledging this concern (do so by asking first as there could be some other reason I suppose). Then let them know you understand and work into your presentation on how important it is for you to be able to identify exactly what you are buying into. You need to confirm things with your new tenants before you buy but let the seller know you understand their concern.

From there it comes down to negotiation. Perhaps you might suggest that the estoppel letters will be done after other certain and critical due diligence has already been completed and passed. This way the seller should be assured that the sale is going to go through but that it will not be completed until the final estoppel letters are completed and signed by the tenants.

With the resistance you have received, I would not (not that I would anyways) allow the seller to complete this task for me. I do this myself in small parks but have heard of buyers allowing sellers to do this for them in large parks. We have all figured out by now that sellers tell us only what they want us to hear. Providing them the responsibility of performing important due diligence for us seems contrary to self preservation to me.

Long story short, the estoppel letter needs to be done before you close but perhaps reinforcing this position with the seller while being flexible about when it is completed can solve your problem.

Tony


#3

Great response, Tony.

What do you think of this approach as a compromise: Hold back some money and get the estoppel letters within X days after closing. On a 42 space park, even if 25% claimed a security deposit or paid up rent contrary to the seller, it would only be a few thousand dollars. So put a few thousand in escrow for 30 days until letters are collected. I’m pretty confident of the park and seller. They have been quite forthcoming with documents.


#4

If that works for you regarding deposits then it may be the solution you seek. However, I use the estoppel letter for much, much more.

At closing on commercial properties (or semi-commercial properties as I view the smaller mobile home parks), the most common point of contention that may become a sticking (negotiation) point is unpaid rent.

Several folks I have spoken to recently have run into this the day of closing. The seller either wants unpaid rent credited to them at closing (not gonna happen… if they couldn’t collect why should we collect it for them), or they want the right to that rent (in some cases I don’t care, but if you can get the right to that rent you have a windfall if you can document and enforce it … that’s where the second part of my estoppel letter comes in).

The first section of your letter might ask the tenant how much they pay in rent and how much they paid in security deposit.

Section 2 might ask if they owe any rent to date and if so how much. I also ask here if the park owes the tenant any rent credit! You will be surprised how many will show up after you close saying they paid a month in advance, or got rent credit for cutting grass etc. (note: see section 4)

Section 3 addresses rental units owned by the park and asks if there are any repairs needed or damage to the home. This helps us prioritize our repair list and projections for the first few months after we take ownership of the park. More importantly this allows us to document the damage, repairs needed or lack thereof. If a tenant moves out the first month we own the park, I don’t want them asking for their deposit back despite holes punched in the walls etc. and have them claim it was like that when they moved in and like that when we bought the park.

Section 4 notifies the tenant that we will be buying the park with a projected closing date of xxxxxxxx and that rent for that (or the following month - however your closing is worked out) must be paid to our company at this new address. It notifies them that any rent sent for that month and thereafter that is sent to the seller will not be credited to them and it will be treated as non-payment of rent.

Section 5 is a block for their signature and you might add a line stating they read the above in entirety and/or you read it to them and explained it to them while answering all of their questions. If the park is a small one like the kind I focus on, then you go and knock on each door and speak to the tenants in person. You may even get a quick tour of the park owned homes at this time. For larger parks this may not be practical but the letters can remain the same, just not the part of section 5 where you read it to them since it may have to be posted on the door or mailed.

The estoppel letter to me is a tool to stop arguments over money from ocurring at the closing. It also survives the closing and helps me stop later arguments by tenants who try and find some reasoning why they did not pay me what I am owed.

Tony


#5

I have received a number of requests for copies of the estoppel letter I use. There is no magic to it, it says exactly what I wrote above. Adapt it to fit your needs just as I did. It is a living document. Each time I hit a new problem, it went on the form.

I started out with just rent and security deposit amount. Guess how I came up with the other 4 sections!!!

We are basically documenting information to discourage future argument. Take what you like from my post and put it on your letterhead if it helps. There is no magic to it and it has not been tested in court (remember it its intent is to discourage arguments that may occur at the closing or during rent collection).

Copy and paste if you think it will help.

Tony


#6

Thanks Tony for the great info. - James