Are you considering purchasing commercial real estate? If so, you’ll likely need to decide if you want to purchase an owner’s commercial title insurance policy. A lender’s policy will likely be required if you are financing the purchases with the help of a bank or similar institution, but an owner’s title insurance policy would provide financial protections for you as the new property owner.
Is this insurance policy worth it, or is it something you can pass on if you believe the seller is operating in good faith? In today’s blog, we explore the good, the bad and the ugly about commercial title insurance.
The Good
Despite what you may think from the premise of the blog, we’re going to spend the majority of our time in the “good” category. An owner’s title insurance policy is an incredibly useful piece of coverage to own because it protects you from so many unforeseen issues. During the acquisition phase, you and your commercial title team will do plenty of investigation to ensure you’re purchasing a clear title, but there’s no way to guarantee that every possible issue has been uncovered. Perhaps there is a long-lost relative that has an ownership stake in the land, an ex-wife was never officially removed from a title or it comes to your attention years down the road that a previous owner had unpaid taxes associated with property. All of those previous issues become your problem, even if you were not involved at the time, because you are the new owner of the property.
In these instances, a commercial title insurance policy protects your financial interests.
Another huge benefit of an owner’s title insurance policy is that it isn’t like automobile or health insurance, which require you to purchase the policy every year. With title insurance, you make a one-time payment and get coverage for as long as you own the property. One simple payment provides peace of mind for decades so long as the property remains in your name. There’s just too much potential downside to pass on purchasing a title insurance policy in most instances.
The Bad
There really isn’t anything “bad” about a title insurance policy, but there are a few things you’ll want to be aware of. For instance, you’ll want to work with an experienced title agency like Commercial Partners when purchasing a policy to ensure all aspects of your commercial property are protected. Commercial properties can be significantly different from one another, and certain properties will need additional coverage based on the unique needs of the land and the commercial use. Making sure that a policy is created to your specific needs is important, as a cheaper generalized policy may not provide all the protections you need.
The only other aspect you need to be aware of is that title insurance isn’t a catch-all safeguard for any issues with the property. New issues that are created after the policy has been acquired likely would not be covered by your insurance. Title insurance is designed to protect you from issues that arose from before you became the owner, so if you create a mess or fail to pay your property taxes, the policy won’t be able to bail you out.
The Ugly
The only “ugly” thing about commercial title insurance is needing it and not having it. Failing to secure this one-time policy can cost you, and it can erase all the hard work you’ve put into a property or business. Rates are incredibly reasonable given the scale of coverage they provide, and their one-time nature means it’s a one and done transaction that protects you for life (or until you sell the property).
Don’t let an ugly situation arise because you overlooked title insurance or assumed you were in the clear. Protect your financial interests by securing a title insurance policy for your next commercial venture. For more information, or for help with any aspect of commercial property acquisition, reach out to the team at Commercial Partners today at (612) 337-2470.