Let’s discuss estoppels – specifically a tenant estoppel. Now what in the world is an estoppel? By definition an estoppel is a legal bar to alleging or denying a fact based on one’s own previous actions or words to the contrary. In other words, you can’t go back on your word.
So how does this come up in real estate? Well, it actually comes up quite often. When you are buying a piece of land many times the seller will have rented their land to a farmer in order to maintain their agriculture exemption because it’s very advantageous to keep your exemption on the property because it keeps your property taxes quite low. Many times, unfortunately, these will be verbal or handshake agreements with these farmers, so you are then beholden to what that agreement was and you’re reliant on them keeping their word.
This came up recently with a client of ours. He had purchased a property from a seller that had been renting the land to a farmer. They said they had a handshake agreement in place and it was month to month. After our client purchased the property, he approached the farmer and said, “After you conduct your last harvest, we are wanting to develop the property so we are going to ask you to leave.” Well, unfortunately, the farmer didn’t think too kindly of that and he got a lawyer to fight my client. My client had to get a lawyer as well and instead of going to court, my client just had to pay him to leave the property which cost him several thousands of dollars.
This all could have been avoided if my client would have gotten the farmer to sign a tenant estoppel before closing on the property. This just simply will state what the lease terms are even if it was a verbal or handshake agreement. Such as, how much is the farmer paying every month? What is the duration of the contract and other terms for example. So don’t forget to get a tenant estoppel if it’s just a verbal or handshake lease in place.
Feel free to reach out to us with questions or other topics you’d like to see covered.
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