October 30, 2023
We may not be able to chase down your tenants, but we can ensure unparalleled accuracy when piecing together estoppel certificates. See how Prophia can help leasing teams get fast sign-off on estoppel, avoid additional underwriting, and impact strategy.
There are few things as challenging as getting all parties to sign off on the details of a contract. Apply whichever specifics you would like. And the process becomes even more complicated when documentation must return to underwriting due to inaccuracies.
So how can you get all of your ducks in a row in the lead-up to your next certificate verification, let’s say, in the context of an estoppel clause for an existing tenant? Stop herding cats every time you need to get sign-off on critical tasks, here is how Prophia makes estoppel certification sign-off painless for everyone involved.
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Defining Estoppel in CRE Terms
Refinancing & The Important Role of Estoppel
Ramifications of Estoppel Discrepancies
Using Prophia for Speedier Estoppel Verification
Defining Estoppel
The term “estoppel” is not exclusive to CRE. In common law, it is a doctrine that “prevents one from asserting a claim or right that contradicts what one has said or done before, or what has been legally established as true,” according to Cornell Law School. In essence, it is a legal principle that maintains equity between two parties and prevents one party from bringing additional claims or asserting a particular position on the other.
What is a CRE estoppel?
While this is the definition of estoppel in common law, in CRE, estoppel clauses play a more specific role in tenant-lender relationships. An estoppel is a certificate that captures all of the in-place terms of a tenant’s lease, making it possible for lenders to understand cash flow of a specific property and for tenants to verify those terms and formally agree to them.
It’s a critical document in the refinancing process, as it allows lenders to fully understand the most up-to-date terms and financial standing of a property. For tenants, estoppel gives them a chance to make changes to the terms of the agreement when necessary or confidently refer to that document when promoting the property to prospective buyers.
The estoppel certificate also allows both parties to address any outstanding claims existing for either party, which is critical to address before an asset can be refinanced or, if necessary, sold.
The Refinancing Landscape & The Importance of Building Cash Flow Data Accuracy
In a market where selling and refinancing have gained traction as strategies to boost ROI, it's crucial for property owner representation teams to handle financial data. Over-reliance on potential buyers to salvage underperforming properties, especially in sectors with limited demand, is no longer a viable approach.
As a result of these challenges, conventional strategies have lost their effectiveness, prompting leasing and ownership teams to take a more serious approach to evaluating the risks associated with refinancing and securing improved loan terms. This approach helps them navigate market obstacles, reduce monthly expenses, and enhance overall financial arrangements.
Refinancing property loans goes beyond immediate financial gains; it also eases investor concerns and mitigates the risk of foreclosure, a concern highlighted by S&P Global Ratings. Preventing such negative outcomes is a priority for ownership groups in the current market, emphasizing the significance of those responsible for collecting essential cash flow data for their property portfolios.
Ensuring the accurate representation of in-place tenants with up-to-date information is critical for leasing teams and property managers. A precise ledger, like the sort of ledger covered in estoppel, enables them to make informed financial decisions that boost ROI and inspire investor confidence. In today's environment, it's more essential than ever for leasing teams to establish robust building data from the outset, avoiding discrepancies that could lead to bureaucratic purgatory or, worse, financial losses.
Possible Ramifications of Estoppel Discrepancies
It’s very important to get key data points and terms correct when it comes to in-place tenants. And this is particularly true when getting speedy approval on an estoppel certificate. Not only does this ensure a streamlined verification process with your tenant, but it also plays a key role when valuing a property.
The alternative, missing a key term of the estoppel, can have negative consequences in the relationship with an existing tenant. In a CRE market where an unnecessary vacancy carries a lot of weight, maintaining client relationships is highly important for the overall performance of a portfolio.
Additionally, missing key terms in estoppel can prolong the underwriting process, and even potentially undervalue a property. Inaccuracy pertaining to the value of a commercial property can place CRE teams in a vulnerable position in the market and even cause them to miss certain opportunities when refinancing and give your team an inaccurate snapshot of the market and your portfolio performance.
How Prophia Helps CRE Professionals Build Estoppel Certificates with Accuracy and Ease
When an estoppel certificate is required, running diligence against your in-place tenants’ data can be an all-hands-on-deck exercise for leasing teams. Whether that requires them to manually review the most current lease abstract or hunt down the answers to outdated information, the last thing leasing professionals want to have happen during estoppel is the need to prolong the underwriting process or make it harder to get sign-off from the tenant.
With Prophia, leasing admins can gather the essential leasing data from one, accurate location and easily run diligence against the data’s original documentation. This significantly reduces the amount of time key personnel spend on manual data aggregation and allows them to devote more time to ensuring data accuracy so estoppel verification happens quickly without the need for additional underwriting.
Small improvements to critical tasks like this can lead to systemic improvements, like regularly tightening a bolt or oiling a hinge on a complex machine. Make sure your operational and strategic tasks are running at max efficiency with an advanced solution, like Prophia, built for the many moving parts of CRE.
If your team experiences unnecessary roadblocks around essential tasks like estoppel sign-off, learn how Prophia streamlines essential tasks while ensuring bulletproof data accuracy every step of the way.