What Promissory Estoppel Means (and When It Applies)
Promissory estoppel is a legal doctrine that enforces certain promises even when no formal contract exists. It fills the gap when someone makes a clear promise, the other party reasonably relies on it to their detriment, and a court determines that enforcing the promise is the only fair remedy.
In real estate investing, promissory estoppel often comes into play when deals fall apart despite assurances given during negotiations. Think of the seller who says “you have the deal” before signing the purchase agreement, prompting you to spend $50,000 on environmental studies—then walks away when a better offer arrives.
Most contract disputes require proving offer, acceptance, and consideration. Promissory estoppel bypasses that by focusing on reliance and fairness. It’s typically raised as an alternative claim when a traditional contract can’t be established—especially when the statute of frauds (which requires real estate contracts to be in writing) blocks enforcement.
However, the doctrine is narrow. Not every broken promise triggers it. Courts apply it cautiously, particularly in commercial real estate where sophisticated parties are expected to protect themselves contractually.
The Core Elements Courts Look For
While jurisdictions phrase them differently, four elements typically define a valid promissory estoppel claim.
Promise. The defendant made a clear, definite promise or assurance. Vague optimism (“we’re hoping to close soon”) or preliminary discussions usually won’t qualify. Courts look for something concrete that a reasonable party could act on.
Reliance. The plaintiff actually relied on that promise by taking specific action or refraining from action. This must be reasonable under the circumstances—not every response to a promise is justifiable.
Detriment. The reliance caused measurable harm: out-of-pocket costs, lost opportunities, or changed position. “I could have made money elsewhere” rarely works without evidence of concrete losses.
Injustice. Enforcing the promise is necessary to prevent an unjust result. This is the court’s safety valve. Even if the first three elements exist, a judge may deny relief if the plaintiff had other protections or bore responsibility for the risk.
Quick element-by-element checklist (promise, reliance, detriment, injustice)
Use this checklist when evaluating exposure or potential claims:
Clear promise? Look for specific commitments in emails, letters of intent, term sheets, or verbal assurances with witnesses. General negotiations don’t count.
Reasonable reliance? Did the promisee take steps a prudent investor would take based on the promise? Were major terms still open? Was there explicit non-binding language?
Actual detriment? Quantify it. Due diligence costs, forgone opportunities, construction deposits, lease improvements, financing fees. Keep receipts and contemporaneous records.
Injustice otherwise? Would denying enforcement be unfair? Or did the investor assume known risks, ignore warnings, or have other remedies available?
Missing even one element typically defeats the claim. Conversely, satisfying all four puts the promisor in serious litigation risk.
How Promissory Estoppel Shows Up in Real Estate Investing
Promissory estoppel disputes arise most often in the space between handshake and closing—where commercial urgency collides with incomplete documentation.
Letters of intent and term sheets. LOIs typically state they’re non-binding, but specific assurances within them can still create risk. “We agree to reimburse your Phase II costs” or “You have exclusive negotiation rights through June 30” may be enforceable promises even if the broader deal isn’t.
Seller assurances before contract execution. A seller tells you to start mobilizing contractors or ordering materials because “we’re definitely closing” or “the deal is done, just waiting on signatures.” You incur costs. The seller backs out. If you can prove the four elements, you may recover reliance damages even without a signed purchase agreement.
Leasing promises to tenants or investors. Property owners sometimes make commitments—verbal or written—about buildout allowances, lease terms, or exclusivity before executing a lease. If a tenant renovates or terminates their current lease based on the promise, promissory estoppel may arise.
Construction bids and contractor reliance. Less common from the investor’s perspective, but worth noting: contractors often submit bids relying on subcontractor quotes. In some jurisdictions, promissory estoppel prevents general contractors from shopping bids after a subcontractor has committed a number.
Common scenarios: LOIs/term sheets, seller assurances, leasing, construction bids
In practice, the riskiest moments are when parties act like a deal is done before it’s legally binding.
Investors greenlight costly third-party reports—Phase I and II environmental assessments, ALTA surveys, appraisals, zoning consultants—trusting the seller’s timeline. Meanwhile, sellers hold properties off the market or decline backup offers based on buyer assurances.
Emails saying “you’ve got the property,” “we’ll take care of you,” or “just a formality now” carry weight in litigation, especially when paired with actions that confirm mutual intent.
Term sheets and LOIs create particular tension. Parties want flexibility to negotiate but also need early commitments on timing, exclusivity, confidentiality, and cost responsibility. When drafters don’t cleanly separate binding from non-binding provisions, courts may enforce the parts that induced detrimental reliance.
Remedies, Damages, and Practical Limits
Courts generally award reliance damages in promissory estoppel cases—enough to restore the plaintiff to their pre-promise position.
That means out-of-pocket costs tied to reliance: due diligence fees, deposit forfeitures, wasted legal and consultant expenses, costs of unwinding commitments. It typically does not include the profit you expected from the deal (often called “expectation damages” or “benefit of the bargain”).
Some jurisdictions allow broader recovery, but the trend is conservative. The goal is fairness, not giving the plaintiff a full contract remedy without a contract.
Specific performance—forcing the defendant to complete the transaction—is rarely granted in promissory estoppel claims, especially in commercial real estate. Courts prefer monetary compensation.
Practical limits. Even if you prove the elements, recovery may be capped by what’s necessary to avoid injustice. If you proceeded despite obvious red flags, refused to formalize the deal when offered, or contributed to the breakdown, damages may be reduced or denied.
Jurisdictional variance matters significantly. Some states treat promissory estoppel as a shield (a defense to enforcement) more than a sword (an independent cause of action). Others allow it to override the statute of frauds in limited circumstances. Always analyze local case law.
Investor Playbook: How to Document, Negotiate, and When to Call Counsel
Smart investors reduce promissory estoppel risk on both sides of the table through clear documentation and disciplined communication.
Drafting LOIs and term sheets. Label non-binding provisions explicitly: “This Letter of Intent is non-binding except for Sections 4 (Confidentiality), 7 (Exclusivity), and 9 (Costs), which are binding obligations.” Define what happens if the deal doesn’t close—who pays for what.
Managing communications. Avoid unconditional language in emails and calls when terms aren’t final. “We’re working toward closing” is safer than “you have the deal.” If the other party asks you to incur costs before signing, address it in writing with clear conditions.
Aligning actions with agreements. Don’t start costly work until binding commitments cover the risk. If you must move early for business reasons, document the exposure and get partial reimbursement guarantees or deposits.
Tracking costs and reliance. If you’re the potential plaintiff, contemporaneous records are critical. Log every expense, email, and phone call that shows reliance was foreseeable and reasonable. If you’re the potential defendant, note when the counterparty was warned about risks or advised to wait.
Knowing when to call counsel. Bring in a real estate attorney before issuing or relying on deal assurances that could trigger significant costs. If a dispute arises, seek advice immediately—statutes of limitations and documentation windows close quickly.
Finally, remember that preventing litigation is almost always cheaper than winning it. Clear agreements and transparent communication reduce the ambiguity that fuels promissory estoppel claims.
FAQ
What is promissory estoppel in plain English?
It’s a legal doctrine that can make a promise enforceable even if there isn’t a formal contract, when someone reasonably relies on the promise and is harmed, and a court decides enforcement is needed to prevent unfairness.
What are the elements of promissory estoppel?
While wording varies by jurisdiction, courts commonly look for (1) a clear promise, (2) reasonable and foreseeable reliance, (3) actual detrimental change in position, and (4) that enforcing the promise is necessary to avoid injustice.
How is promissory estoppel different from breach of contract?
Breach of contract requires a valid contract (offer, acceptance, and consideration, plus any required formalities). Promissory estoppel is often pled as an alternative when a contract can’t be proved or is unenforceable (for example, because consideration or a required writing is missing).
Can promissory estoppel override the statute of frauds in real estate?
Sometimes, depending on the state and the facts. Because most real estate purchase agreements must be in writing, promissory estoppel arguments are highly jurisdiction- and fact-specific—especially where a party made substantial, foreseeable moves based on an assurance. Get local legal advice early.
What damages can you recover under promissory estoppel?
Often, courts focus on reliance damages (out-of-pocket costs and losses caused by relying on the promise) rather than full “benefit-of-the-bargain” contract profits. Some jurisdictions may allow broader remedies, but awards are typically limited to what avoids injustice.
Does an LOI, term sheet, or email promise create promissory estoppel risk?
It can. Even when a document says “non-binding,” specific assurances (timing, exclusivity, reimbursement, “we will close,” “you have the deal”) can create reliance risk if the other party takes costly actions based on them. Clear drafting and careful communications matter.
What counts as “reasonable reliance” for investors?
Reliance tends to look more reasonable when the promise is specific, the promisor expected action, and the investor’s actions were typical for the deal stage (e.g., limited diligence after an exclusivity promise). It’s less reasonable when key terms are unsettled, major contingencies exist, or disclaimers are explicit.
How can investors reduce promissory estoppel exposure in negotiations?
Use precise non-binding language where appropriate, avoid unconditional closing assurances, define what (if anything) is binding (confidentiality, exclusivity, cost reimbursement), keep a clean paper trail, and align actions (like ordering costly reports) with signed agreements and stated contingencies.
