If the term “Leasehold Title Insurance” is unknown to you, you are not alone. Leasehold Title Insurance has not been in great demand in recent years due to the few leasehold mortgages being issued and because most people are unaware of the value of such insurance.
A Leasehold Title Insurance Policy insures either the owner of a leasehold estate, or a lender making a loan secured by a mortgage on that leasehold estate, with respect to the title of the property. If a tenant is prevented from using a property because of an insured
title matter, the tenant will be covered under this title insurance policy.
Any tenant entering into an agreement granting the use or occupancy of land during a specified period of time in exchange for rent needs a Leasehold Title Insurance Policy.
If during an eviction, when damage or loss, value of the estate, and financial interest of the insured is being added up, the insured may collect the value of the remaining lease term of the leasehold estate.
Incidental damages may also be recovered by the tenant, including reasonable costs in securing a replacement lease (costs to obtain zoning or other approvals, engineering or architectural fees, consulting fees incurred or brokerage commissions), reasonable costs of rent, damages or relocation of personal property that the insured might be obligated to pay to anyone else who has a paramount title
to the landlord’s lease or the fair market value of any lease.
Difficult enough to understand when it comes to a residence, policies concerning a commercial property can become very complex, as can any problems that come up with the title to such property. A reputable title company and title professional experienced with leasehold policies should be consulted to provide guidance in all matters relating to leasehold title policies.
A title search offers answers to as questions that are important to someone contemplating such a lease of real property:
- In the lease, is the landlord named the true owner of the premises no matter what use the tenant is making of the property? (If the tenant’s business is built on the property, this is a vital question.)
- Does the mortgagee need to give permission to lease the premises? (Running afoul of the lending institution due to ignorance of such permissions can be devastating for a tenant.)
- What restrictions or covenants limit the tenant’s intended use? (These might be contained in a prior leases revealed in a thorough title search.)
- If the mortgage gets foreclosed, what happens to the tenant’s possession of the property?
- Who has a say in any no-disturbance agreement?
- Are there any restrictions or easements that may limit development or use of the leased property?
If you are contemplating a long-term lease or an arrangement where significant leasehold improvements are to be made, talk with your title agent and consider purchasing Leasehold Title Insurance for your own protection.
For more information on Leasehold Title insurance, visit the American Land Title Association website.