What is an Estoppel Letter?
Most owners know that when they want to buy or sell their unit or parcel that they need to contact the community association or its attorney to get an estoppel letter. Both the Florida Condominium Act and Florida Homeowner’s Association Act devote sections to estoppel letters, a/k/a certificates of assessments. See Florida Statutes 718.116(8) (Condos) and 720.30851 (HOAs).
But what does an estoppel letter do, why is it needed and what’s required to be included? And why is it called an “estoppel” letter?
Firstly, for clarification, Chapter 720 (HOA) refers to this letter as an “estoppel certificate.” Chapter 718 (Condo) simply says “certificate.” Often you’ll hear it called an “estoppel letter.” For all practical purposes, each is the same thing. Personally, I call it an estoppel letter.
So what is the purpose of an estoppel letter? The vast majority of the time it’s used to facilitate a closing on a unit or to pay off a debt on the parcel. In Florida, association unit or parcel owners are jointly and severally liable with the previous owner for debts on the property. Therefore, when somebody buys an association property they need to know how much is owed at a given time so that amount can be collected and applied at closing. An estoppel letter is a certificate, signed by either an officer or authorized agent of the association that states what amount is owed through a given date. This date is generally a few weeks or a month in the future. The parties who requested the estoppel can rely on it to know how much is owed through the date stated on the letter.
- EXAMPLE – There’s a short sale on a condo unit and the current owner hasn’t paid assessments in 2 years. The total amount owed by the owner/seller is $4,000 but assessments keep coming due each month, along with additional interest and late fees. If the buyer were to simply purchase the unit, they would inherit that debt and be jointly and severally liable for it with the previous owner for the entire $4,000, plus late fees and interest. Since the buyer doesn’t want that to happen, they request an estoppel letter from the association. The request is made on June 15, but they aren’t planning to close until July 10. The association would calculate how much is owed through July 10. The association would take the current balance, add July’s assessment, plus interest and late fees and state that if “$4000 + X” amount is paid by July 10, there will no longer be any amounts owed on the unit until August 1 (the next monthly assessment).
NOTE – Once the estoppel letter is signed and delivered, the association is bound by that quote. It cannot come back later and say they miscalculated or forgot a month of assessments, etc. Think of it as a temporary promise. On another note, if July 10 comes and goes and the amount isn’t paid, in my opinion, the estoppel is void and a new estoppel letter would be required.
What’s contained in an estoppel letter? Despite recent attempts to create a statutory form estoppel letter, there remains no exact template for what should be contained in the letter. The Florida Statues only say 1) it needs to be signed by an officer or authorized agent of the association and 2) stating all assessments owed and other monies owed on the parcel. However, it’s good practice to include the following information:
- Name of the association
- Name of the unit/parcel owner
- Description of the property (legal description is not required but at minimum the parcel address or unit number.
- Total amount owed to the association
- I typically include one lump sum amount, if they request a breakdown of assessments, late fee, interest, etc. I will provide a ledger from the association.
- Date through which that total amount is owed
- Instructions on where to send payment
- Signature of an officer of the association or authorized agent.
So, what does NOT need to be included in an estoppel letter? Again, there’s not a statutory form or any legal guidance on what is, or is not required to be on this form. So there is no requirement to answer a laundry list of questions from the buyer. The association does not have to address things like voting and use rights. Prospective purchasers have a right to certain information regarding an association pursuant to Florida Statutes 718.111(12)(c) and 720.303(5)(c). Let the prospective purchaser request the year-end financials plus the question and answer sheet and they can make their own determinations.
What about pending special assessments? If the special assessment has been formally adopted then that must be disclosed. If the special assessment has not been adopted then it does not need to be disclosed.
For example, the board adopts a special assessment that requires all owners to pay $1,000 per quarter for the next 4 quarters. The estoppel letter is requested on February 1 but the first special assessment payment is not due until April 1. In that case, the special assessment needs to be disclosed.
In another example, the Association has no reserves and badly needs a new roof. The board is still getting bids and will likely propose a special assessment at the next meeting. In this case, because nothing certain has been adopted, there’s no requirement to disclose a special assessment.
So why exactly is it called an “estoppel letter?” Estoppel is a rarely used term unless you’re in the legal field. The legal definition is “a bar or impediment (obstruction) which precludes a person from asserting a fact or a right, or prevents one from denying a fact.” What does that mean? Simply it means you said something or took some action that now you cannot take back. So an estoppel letter is a promise that if an amount is paid by the date specified you cannot change your mind or take that back later on.
The final question pertains to cost. Can a fee be charged for providing an estoppel letter? The answer is yes, so long as the fee is reasonable and “established by a written resolution adopted by the board or provided by a written management, bookkeeping, or maintenance contract.” Previously, prospective purchasers would either pay nothing for an estoppel letter or be charged exorbitant fees, depending on the Association. In order to limit the fees imposed and provide some kind of structure, regulations were initiated at the beginning of 2015. The money is collected upon request for the estoppel letter. Keep in mind though if requested in accordance with a closing and the closing does not occur, there’s a mechanism for the requester to get a refund of the fee. Frankly, I don’t understand the logic behind this refund procedure but it’s there. Typically the fee for such a letter is no more than few hundred dollars.