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Promissory Estoppel Examples in Real Estate

In the world of contracts, a promise can become an enforceable part of a contract if it causes one of the parties to change their position in a substantial way because of it. Even though these promises made might not be written in the physical contract, they are considered promissory estoppels. False promises can therefore be taken to court and the promise can be enforced for its market value. In real estate, this is often seen during the negotiation phase of a mortgage or in the enforcement of a lease. A landlord might promise to fix a water heater if a tenant will sign a lease, but then not fix the water heater at all. A property owner might offer someone a percentage of a home's sale to complete a repair, but then never sell the home. In each instance, the injured party would be entitled to compensation because the promise was left unfulfilled.

Why Are Promissory Estoppels Important To Know About?

The courts treat a promise as a verbal contract. They have the same weight and power as a written contract from a legal standpoint. If a tenant or potential buyer of a home takes specific actions because they were given a promise by a landlord or a current property owner, then this is often enough evidence to support the existence of the verbal promise. From a rental standpoint, the condition of the security deposit becomes one of the biggest places of dispute when it comes to promissory estoppels. If a property manager were to tell a tenant to not worry about cleaning up a property upon moving out, then the tenant would likely leave the property in whatever condition it happened to be in when they moved out. Under a standard written lease, portions of the security deposit could be withheld to prepare the property for a new tenant. This changes because of the promise made: “You don't have to worry about cleaning up the property to move out.” The contract stipulations have been verbally modified by the property manager and created a specific behavior from the tenant. Any cleaning charges would then become the liability of the landlord or property manager. Some courts might even consider “cleaning up” to include repairs.

It Is Always Important To Watch What Is Said

Words come back to haunt landlords and property managers more often than not and it is usually in simple ways. Sometimes something as simple as a “yes” to a question a tenant has is enough to create promissory estoppels. If a property owner doesn't allow pets and a management company tells a pet-owning household that they should apply for a lease on that property, then it could be ruled that pets must be allowed and compensation could be awarded for denial of this. A tenant or a buyer does not need to take possession of a property to be awarded a promissory estoppel. As long as one party endures a cost of time, labor, or money because of a false promise made by the other party, then compensation may be legally due. Promissory estoppels also work both ways. If a tenant makes a promise that causes a landlord or property manager to take specific actions, then compensation could also be due. This doctrine has been in US law for generations and for good reason: a false promise could be used to create favorable contract conditions for one party and not the other. By making sure everyone stays honest, fair compensation can result more often.

Posted on Dec 29, 2014

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