Title Insurance for Commercial Real Estate & Legal Protections

Title insurance protects commercial property owners from problems arising out of the ownership of the property. The goal of a commercial real estate transaction is to transfer ownership of the property to the buyer. Title insurance helps achieve this goal by ensuring the accuracy of the final title report and satisfying any lenders involved of the legitimacy of the transaction.

Common Title Issues

Title insurance may protect against problems like zoning issues, boundary issues, some environmental concerns, or liens on the property resulting from things like unpaid taxes or contractor payment disputes. A title search can bring to light an owner who does not match the seller of the property. It can also help clear up any questions about the legal boundaries of the property or easements. Zoning concerns are especially important during a title search, since a buyer will want to ensure that they can use the property for their intended purpose.

The Title Insurance Process

The process of procuring title insurance for a commercial property begins when a title insurance company or a knowledgeable attorney researches public records and drafts a title report. The title report will describe the property and details such as how the title to the property is currently held, whether there are any easements on the property, whether there are any outstanding liens or mortgages attached to the property, and sometimes whether there is pending litigation concerning the property. The title commitment provided by the insurance company will generally state certain exceptions to coverage and requirements that must be met before the policy can be issued.

A buyer can ask a seller to address something that shows up on a title report, like paying off a lien on the property. Once the final title report is complete, coverage exceptions have been negotiated, and the relevant requirements have been met, the buyer and seller can proceed with the closing, during which the title insurance company will issue the title insurance policy. Depending on the custom in the state or locality, the seller will often pay the premium for the title insurance coverage. Premiums are based on the purchase price of the property and the type of policy issued.

Though it is not necessarily required for any commercial real estate purchase, lenders will usually mandate that buyers obtain title insurance. Title insurance is a good way to protect buyers and lenders against problems revealed during a title search or problems that should have been identified in the title report arising thereafter.

Last reviewed September 2024