Commercial title insurance landscape
Feb 25th, 2014 | By Paul Miron
When I started private practice in the mid 1980s I learned the ins and outs of the commercial real estate market pre-title insurance. Back then we used to have to write away for every single search and wait for the responses. If the responses revealed a problem then this would result in either a delay to fix the issue, an adjustment in the purchase price or the deal falling through. My first real experience with title insurance came in 2002 when I was working in the hotel industry and we used title insurance to insure the sale of a portfolio of 150 hotels, including mortgages. Due to the large number of sites, using title insurance streamlined the closing process while adding reassurance to investors as the hotels were converted into a REIT.
How has the commercial title insurance landscape changed?
I first started working in the commercial title insurance field in 2003, and although the first commercial policy was issued in 1995, the volume of insured transactions at this time was still relatively low and any deal with an insured amount over $10 million was received with great enthusiasm and glee. Today, the trend to use commercial title insurance continues to grow and our enthusiasm is now reserved for deals with insured amounts of greater than $100 million (even exceeding $1billion!).
What was helpful in growing the commercial title insurance market in the early years was the fact that American purchasers and lenders typically title insure all of their transactions as a matter of course, as it has been a part of the American market for over 100 years. So anytime one of them invests in Canadian real estate, it is a ‘check the box’ item to ensure their assets are protected, which of course results in commercial title insurance policies being issued in Canada. The title insurance policies used in Canada are based on the American Land Titles Association policies issued in the US although we have Canadianized the policy itself, and adapted the distribution of the policy to maximize the value to Canadian transactions.
From about 2002 to 2007 we really started to see a shift as more and more Canadian legal and lending professionals realized that, by using commercial title insurance as a tool, not only are they insuring their clients (whether purchasers, tenants or by the lenders themselves) against defects, but also taking advantage of the efficiencies that are made available in closing commercial real estate transactions. Title insurance makes the entire process, whether a purchase/finance or a refinance, a better customer experience overall as the transaction often proceeds more smoothly, is less costly for the client and closes on time. Title insurance companies have the ability to accept some risks in a transaction that lawyers and lenders cannot or will not take. This risk acceptance allows title insurance companies to provide quick coverage solutions to help close deals that would otherwise be delayed (I will speak more specifically about what title insurance can do in commercial transactions in later posts).
Today, commercial title insurance is now a topic of conversation in many commercial purchase and financing transactions across Canada. Between our residential and commercial policies almost any Canadian transaction can benefit from a title insurance policy, from single family dwellings, to strip malls and apartment buildings, to much larger transactions including multiple properties and significant landmarks (i.e. Skydome/Rogers Centre, West Edmonton Mall, Bell Centre). As the economy continues to improve there is no doubt that the appetite for this product will continue to increase and be strong.
How have you seen the commercial real estate market change? Please share your thoughts below.