During my 11 years in the title insurance industry I’ve been often asked the question: “What is the value of title insurance?” This is invariably followed by a comment like: “We have a great and robust land titles system so nothing can go wrong.” A former colleague of mine told me at one point that we should be really calling it off-title insurance, as the policies cover, not only title issues, but also many off-title matters as well. Commercial coverage tends to fall under 3 distinct areas: 1) title issues; 2) off-title issues; and 3) transactional issues. Let’s look at some real underwriting and claims examples.
1) Title Issues
We are often presented with a situation where a lawyer is closing a purchaser or loan transaction and the certificate of title reveals a caveat that was registered, for example, some 30 years ago, and the document has been misplaced by the Land Titles office and therefore cannot be reviewed. What would you, as a prudent solicitor, do? Without title insurance, you would advise your client as to the possible risks involved (although this would be difficult without knowing the contents of the caveat) and the client would then decide whether to accept the risk or not. However as title insurers we can underwrite this title defect and determine whether we can give either full or limited marketability coverage and thereby minimize your client’s risk and allow the deal to proceed. Another example we come across is where a caveat or other document has been registered in error by the Land Registrar on the wrong title. Title insurance can again be the solution to allow this deal to close.
2) Off-Title Issues
An insured wanted to buy an existing 9 hole golf course in a resort area with the view of redeveloping the site into an 18 hole course surrounded by accommodations, restaurants and other amenities. The insured spent a considerable amount of time discussing its proposal with the local municipal officials to ensure that its new development would be acceptable to the municipality and comply with the applicable zoning by-laws then in place. Based on the assurances received from the municipal officials, the insured proceeded to close the transaction with a purchase price that reflected the proposed use. Two weeks after closing the insured received an email from the municipal official dealing with the matter entitled “Oops”. The official had neglected to take into consideration an amendment to the zoning by-laws which effectively meant that the proposed project would not be permitted. The value of the land had therefore just plummeted. The insured made a claim under its title policy based on the error by the municipal official and was compensated for the diminution in value of the property.
3) Transactional Issues
Our insured was purchasing a leasehold interest and had submitted the lease for registration. Unbeknownst to the insured tenant, the landlord was simultaneously completing a corporate re-organization that included a change in name. Due to bad timing, the landlords request to change its name on title was submitted prior to the lease and therefore the lease was rejected as it did not show the proper name of the landlord as it now appeared on title. As the lease could not the registered, the insured submitted a claim. We retained counsel to correct the lease and have it resubmitted for registration and also covered the risk of any possible intervening registrations happening during this gap period that may have affected our insured’s interest.
These are but a few examples of how title insurance can be of value in a commercial real estate transaction. Other examples are fraud, super priority liens, survey issues, and many more.
What types of issues or challenges have you faced in your transactions?
Subject to certain exceptions, commercial title insurance policies equal or below $10M CAD are provided by FCT Insurance Company Ltd. Commercial title insurance policies above $10M CAD are provided by First American Title Insurance Company. Reference should be made to policy documents to confirm the insurer on any individual transaction. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.
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