No Leases, a $700,000 Deal, and the Fix That Almost Didn’t Work

A four-bay commercial building with highway visibility, a half-acre lot, and multiple tenants already in place sounds like a clean listing. It even attracted a buyer willing to pay $700,000, making the sale appear to be a straightforward commercial transaction. 

One critical piece was missing. None of the occupied spaces had signed leases, creating uncertainty for both the buyer and lender during due diligence. The oversight nearly derailed the sale before a last-minute solution kept the transaction on track.

Undocumented Tenancy Becomes a Closing Liability 

The lease package request came in early, the standard documentation a buyer's agent pulls during due diligence. The owner could not produce a single signed lease or other written tenancy agreement. Years of handshake arrangements had worked until a $700,000 purchase agreement required proof the tenants' rights and obligations actually existed. 

The owner genuinely thought the leases existed, and he believed it right up until we asked. He just did not actually have them anywhere in his files.

Undocumented tenancy creates immediate legal uncertainty for buyers. If a tenant and landlord disagree over lease terms, rent, or occupancy, resolving the dispute becomes much harder without written documentation. 

This is also where financing often becomes more difficult. Under the Uniform Standards of Professional Appraisal Practice (USPAP), appraisers must develop credible opinions of value based on available evidence. Without documented leases, supporting an income-based valuation becomes more challenging, which can affect a lender's willingness to finance the purchase. Our guide to triple net lease underwriting explains why verifying lease terms is a key part of underwriting a property's income. 

Estoppel Certificates Saved the Deal

The deal survived because every tenant signed an estoppel certificate before closing. An estoppel certificate is a signed statement confirming the material facts of a tenancy. It verifies whether a lease exists, its key terms, whether the landlord is in default, and whether any side agreements apply. Buyers and lenders rely on these certificates because they provide written confirmation of the tenant's position. A tenant who signs an estoppel certificate is generally prevented from later contradicting the facts it confirms. 

In a typical commercial transaction, estoppel certificates are a routine closing document. The leases already exist, and the certificates simply confirm their accuracy before the sale moves forward. 

In this case, there were no written leases to confirm. The estoppel certificates became the primary documentation of each tenancy, making every signature critical to the transaction. Convincing tenants to acknowledge a month-to-month arrangement required careful conversations. Doing so confirmed a less secure occupancy position than some may have assumed. The deal ultimately closed, but the margin for error was extremely thin. 

Arizona law reinforces why this mattered. Under Arizona Revised Statutes, Title 33, a month-to-month commercial tenancy may generally be terminated with 30 days' written notice. A different notice period applies only if the parties agree otherwise in writing. Tenants in informal arrangements face real uncertainty, and buyers inherit that uncertainty until the tenancy is properly documented. 

The Lease Package Comes Before the Listing

Randy Shuffler has spent more than two decades closing commercial transactions in Lake Havasu City and the surrounding corridor. The experience changed how every commercial listing begins. Lease documentation should be complete before a property goes to market, not assembled during the pressure of active due diligence. 

"I assumed that they had leases. He gave me all the lease terms. And usually when I take a listing, I ask for all of that up front, all the leases. You put a whole package together for when you're selling it, because they're going to ask you for that right off the bat. I got a hold of the owner, and he kind of thought there were leases but didn't know. That should have been something we had in hand, and then had those tenants actually sign a new lease or something stating they're month-to-month before we even got into that deal. Which could have just fell apart."

—  Randy Shuffler, Founder and Principal Broker, Lake Havasu City Commercial at Realty ONE Group Mountain Desert

In a market like Lake Havasu City, income-producing properties can move quickly. That leaves little time to resolve missing documentation after a property goes under contract. A transaction that falls apart over incomplete lease records does not just cost the seller a buyer. It can also mean losing negotiating leverage, market momentum, and ultimately a stronger sale price. 

Not sure whether your lease package is ready for buyer scrutiny? Reach out to Randy Shuffler at Lake Havasu City Commercial before the listing goes live. Identifying documentation gaps before listing is far easier than resolving them under contract. 

Lease Documentation Should Shape the Underwriting

Evaluating a tenant-occupied commercial building means the lease package is not background material but the underwriting itself. Tenant credit means little if the lease provides a short exit window. A strong rental history also means little without a signed agreement to support it. 

Ask these questions before writing an offer. 

• Do written leases exist for every unit? Verbal confirmation from the seller is not enough. Request copies early, before committing to contract terms.
• Are the leases current or expired? Expired leases that default to month-to-month carry less value than leases with time remaining. The cap rate calculation changes when every tenant can leave with 30 days' notice.
• Do the lease terms match the listing? A pro forma may reflect informal arrangements the lease does not support. Verify rent, escalations, and tenant obligations against the signed agreement.
• Are there side agreements or verbal modifications? These often surface in estoppel certificates when sellers least expect them. Ask before signing the contract, not after.

A seller who cannot answer these questions during the first conversation is not necessarily concealing something. They may simply not know. That uncertainty belongs in your underwriting, not in your closing documents when the clock is already running. 

Lease structure ultimately determines the income a buyer can rely on. The lease package often tells you more than the pro forma because the real risk lies in the tenancy details. Triple net lease language can shift meaningful costs back to the owner long after closing.

Commercial Lease Questions Answered 

What is an estoppel certificate in a commercial real estate transaction?

An estoppel certificate is a signed document confirming the material facts of a tenancy. The tenant confirms whether a lease exists, its key terms, the landlord's compliance, and any side agreements. Buyers and lenders rely on these certificates because they provide written confirmation of the tenant's position. A tenant who signs an estoppel certificate is generally prevented from later contradicting the facts it confirms. 

Why would a commercial property have no written leases?

Long-term owner-operators sometimes rely on handshake arrangements with tenants they know personally. These arrangements often work for years until a buyer or lender requests written lease documentation. This situation is often seen in smaller markets and family-owned commercial properties. 

Can a deal close without written leases in place?

Yes, but it usually requires additional documentation and carries more risk. Estoppel certificates can help document tenancy when written leases are missing. However, they are not a complete substitute for executed leases. If tenants refuse to sign or the occupancy terms cannot be verified, the transaction may be delayed or fail altogether. 

What happens if a tenant refuses to sign an estoppel certificate?

A tenant who refuses to sign creates uncertainty for the transaction. Buyers and lenders often view an unsigned estoppel certificate as an unresolved risk because the tenancy cannot be fully verified. Depending on the purchase agreement, the buyer may require the issue to be resolved before closing or terminate the contract.

How does undocumented tenancy affect a property's appraised value?

Appraisers rely on lease documentation to support the property's income stream. Without signed leases, an appraiser may discount the income approach or flag the tenancy as a valuation risk. If the appraised value comes in below the purchase price, financing can become more difficult even when the buyer wants to proceed. 

What is the difference between a month-to-month tenancy and an active lease from a buyer's perspective?

An active lease with time remaining provides more predictable income and occupancy. A month-to-month tenancy allows either party to end the arrangement with the notice required by law or by agreement. Because future occupancy is less certain, buyers often view month-to-month income as carrying greater risk than income supported by long-term leases. 

Should a seller create new leases before listing a tenant-occupied property?

In most cases, yes. Formalizing tenancy terms before listing helps eliminate a common due diligence issue and gives buyers and lenders clearer income documentation. A property with complete lease records is generally easier to finance and less likely to face delays or renegotiation during closing.

How do lenders typically respond to a commercial property with no signed leases?

Lenders need reliable documentation to verify the income supporting a commercial loan. Without signed leases, many lenders will require additional documentation, such as tenant estoppel certificates, before approving or funding the loan. If the property's income cannot be adequately verified, financing may be delayed or denied. 

Review the Lease Package Before Contract 

The deal described here closed, but not every deal like it does. The estoppel process worked because the tenants were willing to sign and the timeline held. Change either one of those variables, and the outcome could have been very different. 

If you're evaluating an income-producing property, don't wait until due diligence to uncover missing lease documentation. Randy Shuffler can review the lease package, run a true-net snapshot, and identify documentation gaps that could affect value, financing, or closing. Contact Lake Havasu City Commercial before you commit to contract terms.

About the Author: Randy Shuffler is the founder and principal broker of Lake Havasu City Commercial at Realty ONE Group Mountain Desert. He holds the CCIM designation and is a Certified Commercial Sales Specialist. He has more than 20 years of experience closing commercial transactions in the Lake Havasu City and Kingman markets.