With rising real estate costs, it seems like more business owners are leasing commercial space instead of buying the property outright. While this means you’ll have less of an upfront financial commitment to your business and its location, it also adds a level of uncertainty to your business. If an issue develops with your landlord, those problems can trickle down to you as the leaseholder.
One such issue is a title defect. Title defects are rare, but if they do occur, they can cause massive issues for your business. Your landlord may be protected with an owner’s title insurance policy, but you may have less protections as a lease holder, unless of course you have purchased a leaseholder’s title insurance policy. These types of policies are not right for everyone, but for the right business, it can provide an immense amount of financial security. In today’s blog, we explore whether a leaseholder’s title insurance policy is right for your business.
Do I Need Leaseholder’s Title Insurance?
Title insurance effectively assists an individual when someone else’s problem becomes their problem. For example, with an owner’s title insurance policy, you are protected in the event that a previous owner didn’t pay their property taxes, or a long lost heir claims ownership of your property. A leaseholder’s title insurance policy offers protection for a leaseholder when a title problem develops for their landlord.
Think about it this way. Perhaps you lease restaurant space in a strip mall or adjacent to a hotel. Suddenly, you are informed by your landlord that someone else is claiming ownership of the property. Do you want to continue pouring time and money into your business only to find out that you may be evicted because of a title issue? Maybe you consider moving to a different location to resolve your potential problem as a leaseholder, but moving will be costly, and the new location may not have as much foot traffic as your current spot. You can take a major financial hit all because of an unforeseen issue with your landlord’s title, even if they tried their best to avoid a potential problem.
In this instance, you may benefit from a leaseholder’s title insurance policy. As the name implies, you as the leaseholder would be protected against a title claim against the owner of the property that you lease from. This type of title insurance would provide financial compensation for costs you incur as a result of the title claim, like lost revenue, moving expenses and more. If you’ve invested a lot in your business, or being forced to move to a different location could negatively impact your bottom line, it may be worthwhile to talk with a title company about purchasing a one-time leaseholder’s insurance policy.
For more information about leaseholder’s title insurance, or for help with a different aspect of commercial real estate, connect with the team at Commercial Partners today at (612) 337-2470.