So, you’re surfing the net, browsing real estate, and you come across a term. It’s a strange term, almost alien. “Estoppel…” you whisper to yourself in confusion. What does that even mean?
Okay, so you may have heard the word before. You may have even heard its definition. But there’s no question that estoppels are a complex legal principle and can be difficult to get a thorough grasp on.
So what exactly is an estoppel?
The legal definition, according to Cornell Law School, is: “A bar 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. Estoppel may be used as a bar to the relitigation of issues or as an affirmative defense.”
That’s a mouthful, and not very clear to us laymen. Unless you’re versed in legal terminology, estoppels might be difficult to understand without further explanation.
That’s why we’re here to give a full break down of estoppels, the various types of estoppels, and their purpose within real estate.
What is an Estoppel?
Estoppel is a legal term you’ve probably heard before, but may not recognize. The basic purpose of estoppel is to prevent any party who has entered into a legal agreement from reneging on the terms of said agreement.
Estoppels work within the framework of both common law and equitable practices. If someone enters into an estoppel contract and attempts to violate the terms, the court can issue an “estop” to prevent an individual from making erroneous claims.
For example, let’s say you owe an outstanding debt to a lender and they bring the case to court. The lender may agree to pardon 40 per cent of the debt. The judge can then issue an estoppel, which would prevent the lender from changing their mind in the future and only forgiving — let’s say — 30 per cent of the debt.
Seems pretty straightforward, right? The concept may be easy enough to digest, however there are many different types of estoppel which are specific to certain legal contexts.
What are the different types of Estoppel?
The basic concept of estoppel is universal; it is a legal principle that prevents either party from reneging on the terms of a legal agreement.
But when it comes to estoppels, one size doesn’t fit all. There are certain situations that require different types of estoppel intended for specific legal purposes.
The most commonly issued type of estoppel is the U.S., the promissory estoppel is frequently used in contract law to prevent an individual from changing their mind after a promise is given — even if no legal agreement has been made.
A promissory estoppel argues that a person can seek compensation for damages incurred if the terms of an agreement haven’t been fulfilled by the promisor, if the damages were indeed caused by the lack of fulfilment on the promisor’s end.
For a promissory estoppel to be legally binding, the following terms need to be met:
- The defendant made a clear and unambiguous promise.
- The plaintiff acted in reliance on the defendant’s promise.
- The plaintiff’s reliance was reasonable and foreseeable.
- The plaintiff suffered an injury due to reliance on the defendant’s promise.
An equitable estoppel is based on the principles of fraud, meaning that it forbids one party from taking advantage of another through deception, manipulation, coercion, forceful behaviour, or other fraudulent methods.
This type of estoppel is most commonly used in more serious legal situations, such as when the promisor deliberately conceals information or data from the promisee that subsequently incurs damages for the promisee.
For an equitable estoppel to be enforced, the following terms must be met:
- There must be a representation or concealment of material facts.
- These facts must be known at the time of the representation to the party being estopped.
- The party claiming the benefit of the estoppel must not know the truth concerning these facts at the time of the representation.
- The representation must be made with the intention or the expectation that it will be acted upon.
- The representation must be relied upon and acted upon.
- The party acting upon the representation must do so to his or her detriment.
This type of estoppel is used in situations where a party intentionally delays terms of an agreement at the detriment of other parties in the agreement.
That sounds a little bit arbitrary, however for the terms of this estoppel to be met, the aggrieved party must prove that the defendant deliberately delayed actions which would fulfil the legal agreement, and that the postponement of these actions was avoidable.
In other words, if a party entered into an agreement to pay the other party a certain sum of money to make repairs on a property, and later they can’t pay — not because of a deliberate refusal, but because of a lack of funds due to some unforeseen disaster — this kind of estoppel may not apply.
Estoppel by Record
As with promissory and equitable estoppels, estoppel by record is another commonly used form of estoppel. It’s used to acknowledge previous legal judgments made in cases where the terms of agreement are brought into question.
If an agreement has already been brought to court to address the same or similar concerns, a judge can issue an estoppel by record to prevent relitigation of terms that have already been ruled upon in previous proceedings.
Estoppel by Deed
This type of estoppel relies heavily on physical evidence such as legal documentation; for example, a deed to a property.
Estoppel by deed prevents an individual undergoing litigation from concealing or denying their statements or actions which have been documented or recorded and can be proven with evidence. Basically, it prevents someone from lying during court proceedings if tangible evidence exists against them.
Estoppel by Silence
An estoppel by silence is used in court proceedings to prevent an individual from entering a new statement into the record when said individual has previously had the opportunity to make a statement but has refused, and this refusal subsequently put other parties in an unfavorable position.
Estoppel and Real Estate
Is your head spinning from all these legal definitions? Not to worry. In the context of owning a home, there’s really only one definition you need to worry about: association estoppel.
Otherwise known as an “estoppel letter”, an association estoppel is a document which states the amounts of settlement between the buyer and seller and any other involved parties within a real estate transaction. It is intended to prevent any party within the agreement from changing the terms after the agreement is made.
An association estoppel is typically obtained from a bank or lender, or homeowners’ association, condo association, or any applicable neighborhood association before closing on a home. They’re often used by homeowners’ associations to keep track of a homeowner’s monthly or annual obligations to the association.
The world of homeownership is fraught with many complicated legal definitions, but with a little research and some help from the experts, navigating the real estate map gradually gets easier. We hope you can come away from this article with a more thorough understanding of estoppels.