by Christie McNeill & Sandra Dos Santos
Title insurance, a staple in many real estate transactions south of the border, is becoming increasingly used in the commercial context in Canada. It is being used as both a risk management tool and as a means to complete complex or problematic transactions that might not otherwise close.
Title insurance is an insurance contract that provides the specific coverage set out in the policy with respect to a given piece of real estate. Its function is to reimburse an owner or lender for actual losses incurred with respect to insured issues related to the property.
Title insurance as a risk management tool has gained favour in the commercial real estate sector because it allows purchasers to “insure over” known or potential defects. It is important to note, however, that it does not solve the underlying problem. It does remove obstacles to allow a deal to close and facilitates the settlement of issues by shifting the financial risk relating to the title problem from the purchaser to the title insurer. Title insurance can also protect against problems that may not emerge until well after closing when a purchaser may be left without recourse. It also addresses issues that may be impossible to detect at the time of the closing such as fraud, forgery or mistaken identity. With real estate fraud on the rise, title insurance may provide an extra layer of protection. Available “gap coverage” addresses issues arising between closing and the registration of the documents, and it facilitates large closings with multiple locations. One of the most attractive elements of title insurance, however, is that it may, in certain circumstances, save a purchaser money since some of the regular searches completed by lawyers can be waived by the title insurer.
The content of title insurance policies varies depending on the type of policy. Typically, the face amount of the policy is the purchase price of the property. The following are normally covered in a typical commercial owner's title insurance policy: any defect in title; a charge, lien or encumbrance on the title; unmarketability of title; the lack of right of access to and from the land; and the cost of defending one's title to the property. Since there are typical exceptions and exclusions in standard-form policies, there are additional endorsements available that should be considered. In the purchase of an apartment building property that is not a condominium, the regular endorsements for commercial properties are applicable. Commercial title insurance should be tailored to the specific needs in a transaction and a policy is amended by way of endorsements added to provide additional coverage. As title insurance does not correct the underlying defect, before deciding to title insure, it is important to discuss the benefits and drawbacks of title insurance for any specific transaction with a knowledgeable lawyer.