Browse Proptionary encyclopedia

Build your real estate vocabulary to be able to communicate and invest more effectively and professionally.

Estoppel

DEFINITION

Term used to describe the legal concept that a party is precluded from raising a defense after the party’s actions or statements caused another party to make a decision.

EXPLANATION

Estoppel is the process whereby one party relies on another party’s claim in making decisions. Estoppel can be best understood via a live scenario. For example, if a landlord indicates that his or her tenant has a right to live in the property for five years and will not exercise the right to terminate a lease during that five-year period, and the tenant relies on this promise and makes improvements to the property, the landlord will likely be prevented from exercising the right to terminate because the tenant made repairs on the promise that they would be to live in the property for at least five years.

Estoppels typically apply when a representation has been made when one party asserts a truth or makes a promise to another party without an enforceable contract of that truth.

Equitable Estoppel

Equitable estoppel is the court’s denial to grant a judgment or other legal remedy to a plaintiff due to the plaintiff’s lack of compliance with the legal rendering. Equitable estoppel can also apply to the revocation of a plaintiff’s rights should he or she have misrepresented him or herself to the defendant, fraudulently hid material facts, or failed to have provided valid proof to substantiate the claim.

A judgment is a court imposed nonconsensual lien that allows a winning plaintiff of a claim to place a lien on a defendant’s property for owing an unpaid debt. In the context of real estate, this may occur when a party provides false information about a potential property with the intent to confuse or defraud the other party. In the event the court finds the other party guilty of intentionally misleading the other party, the court will deny the plaintiff’s request for judgment.

Example

Travis, a landlord, and Dorothy, a retail store owner, are in negotiations for the rental space of a large retail space. Travis gets the sense that Dorothy is not interested and tells Dorothy that AMC movie theatres and a few big name restaurants are moving into the shopping center. Dorothy agrees to rent the rental space based on the fact that she believes the larger companies will attract business to her store. Months turn into years and none of the large retailers rent the space at the shopping center. Dorothy stops making payments and the Travis brings legal action against Dorothy for breach of lease for failure to make rental payments. Does Dorothy have a claim to stop making payments?

Yes, Dorothy may have the right to suspend making further rental payments and/or potentially terminate the contract because Travis’s contention that other large businesses would be leasing space at the shopping center induced her to take the lease of the property.

Easement by Estoppel

An easement by estoppel refers to when a servient tenement owner misleads an easement holder on the type of interest he or she possesses in a property, which then causes the easement holder to act on those beliefs.

To establish an easement by estoppel, there must be a false representation and/or concealment of facts which an easement holder relies on to make decisions.

For example, say a prospective buyer is interested in buying a property near a lake. However, the only direct access to the lake is via a private road owned by a neighbor. Intent on selling the property, the seller tells the prospective buyer that an easement exists which would allow his use of the private road. The buyer purchases the property under this pretext, but later discovers that the easement for the private road is not valid. This is an easement by estoppel.

Laches and Estoppel

Laches is a type of estoppel. It describes a situation in which one individual employs a deliberate and unreasonable delay in bringing forth legal action so as to disadvantage an adversary. Failure of a party to  assert his or her rights in a reasonable timeframe, one which is determined by each state, may result in a legal claim being barred.

For example, say Mary moves in next door to Pam and they immediately dislike each other. Pam has lived in the same neighborhood for over 20 years and is aware of all property lines. Mary is not. Knowing where property lines begin and end, Pam allows Mary to develop her land over property lines and into Pam’s property. Pam purposely waits for Mary to finish development before informing Mary that she has violated the property lines and must now take down the house. Because Pam deliberately waited for Mary to spend money and develop the property, knowing that she was in violation of property lines, she is guilty of laches.

Agency by Estoppel

An estoppel is a legal principle that prohibits an individual from asserting a specific claim that contradicts what his or her actions or words previously asserted, and that causes another party to make a decision on the basis of those assertions.

An agency by estoppel refers to a situation in which a principal does not stop a real estate agent from going beyond his or her duties, thus giving the impression that an agency relationship exists. An agency by estoppel involves the presence of an ostensible agent and/or agency.

For example, suppose a principal wishes to sell his house. An ostensible agency is created if the seller allows a real estate agent to execute agent duties without a formal agency agreement in place. An agency by estoppel occurs if that agent finds a buyer and, based on the agent’s word that he represents the seller, the buyer borrows money to purchase the seller’s home. At this point, if the seller refuses to sell to the buyer on the basis that the aforementioned agent did not have the authority to seek out potential buyers, it is the seller who is legally at fault. The seller would be at fault because the seller allowed the agent to purport to be his or her agent for the sale of the property. The agency was assumed therefore the seller would be held liable.

An agency by estoppel is rare.

[quiz-new]