The entire collection of documents affecting a specific property determines real estate title. A thorough review of title issues is required for exceptions and requirements.
Buyers and sellers of commercial real estate conduct extensive due diligence on the property and the other parties, which can delay the transaction.
Let’s look at title exceptions and requirements and how failing to investigate all issues can lead to significant project delays thoroughly.
Exceptions
An exception is a document recorded on the title that limits or prevents certain developer actions. It could include usage restrictions or issues with access.
When buyers accept a title exception, they accept whatever has been removed from the bundle of rights or whatever burden that exception may impose on the property.
Current and future liens for back taxes on real estate and water and sewer charges that are not due and payable as of the closing date are exceptions. Current and future zoning, building environmental laws, ordinances, codes, restrictions, and regulations are in place for all governmental bodies with jurisdiction over the property.
During the title review, the purchaser and their counsel must review all documents affecting the title to the property, including easements, deed restrictions, the existence of any monetary or other liens, and any other matters that may impact the purchaser’s intended use of the property.
A recorded declaration against the property will frequently outline use restrictions and other matters that may significantly impact how a purchaser will use the property after closing—easements are places where it is difficult or dangerous to construct certain structures.
Requirements
The title company could also require something that is difficult to obtain, such as evidence of probate or lien removal. Meeting these requirements can be time-consuming and complicated, adding another stumbling block to home-buying.
The reason for such a thorough examination is that title defects can seriously impede your ability to purchase or resell your property. Banks may even refuse to finance commercial real estate with a defective title in some cases.
Your property’s previous owners may not have been meticulous bookkeepers or billpayers. Even if the former debt was not yours, banks or other lending institutions could place liens on your property for unpaid debts even after the sale has been completed.
While your property’s chain of title may appear sound, these events may affect the enforceability of prior deeds, affecting both prior and possibly present ownership.
A commercial real estate transaction involves one or more contracts between two or more legal entities rather than a contract between two people. Because these transactions are costly, all parties want to limit their liability and frequently form legal entities to own commercial real estate.
Additional steps must be taken to verify the fitness and ability of each entity involved, such as a corporation, LLC, or LLP.
Most real estate, as well as the items or fixtures associated with conducting routine business, are covered by commercial property title insurance. In most cases, having an attorney reviewing a commercial property title insurance contract can help to avoid disputes.
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