Breaking Down Commercial Real Estate Ownership Rights and Insurable Title

Suzette Hinds is a Business Development Director at GRS | Title (214) 296-2166 shinds@grs-global.com

Suzette Hinds is a Business Development Director at
GRS | Title
(214) 296-2166
shinds@grs-global.com

Commercial real estate ownership rights are a topic that GRS | Title can help clarify for your firm. There are several insurable types of property ownership, including but not limited to the commonly insured interests listed below. Please contact us after reading through this if there is a commercial real estate ownership situation you’re curious about that we haven’t explained.

1. Fee Simple – This refers to the ownership of all rights in the land and improvements considered to be a part of the land, which is an estate of infinite duration. The insurable amount of the owner’s title policy covering a fee-simple estate shall be based on: (i) the current sales price of the land and improvements, or if no sale is involved; (ii) the value of the land and any existing improvements (possibly including the cost of improvements immediately contemplated). The insurable amount of the loan-title policy covering a leasehold estate shall be the amount of the loan insured on the land covered in the policy.

2. Leasehold Estates – A lease is an agreement that creates a relationship between a landlord/lessor and tenant/lessee. In a lease, the owner of the land (landlord/lessor) gives the tenant/lessee the exclusive possession of the land for a specified period. A lease (or memorandum thereof) should be recorded in the real property records to insure that the lease agreement is notice to all persons of the existence of the lease agreement. To determine the insurability of a leasehold estate, it is necessary for the title company to examine the lease itself and the title to the land which is subject to the lease. The fee-simple title must also be checked to be certain that the lessor has the authority to create and execute the lease. It is especially necessary to check for access to the leasehold tract, particularly if the leasehold tract is being carved out of a larger tract, wherein access must include the right of ingress and egress not only to the larger tract, but across it as well to the leasehold tract. The insurable amount of the owner’s title policy covering a leasehold estate shall be based on: (i) the total amount of rentals payable under the lease contract, or (ii) the value of the land and any existing improvements (and may include the cost of improvements immediately contemplated). The insurable amount of the loan-title policy covering a leasehold estate shall be the amount of the loan insured on the land covered in the policy.

3. Easement Estates – To put it simply, an easement is a right to use the land of another party for a specific purpose, such as ingress/egress access, a reciprocal easement and maintenance agreement, utilities, construction and other purposes. Easements are created by express language, grant or reservation. Easements may be exclusive or non-exclusive, and also appurtenant or in gross. An appurtenant easement burdens one particular piece of land (the servient estate), and benefits another piece of land (the dominant estate). An easement, in gross, benefits a particular person, the land over which this person has easement rights in the servient estate, and in some instances, there may be no dominant estate. Most of the easements in commercial real estate transactions are appurtenant easements and will “run with the land,” meaning no matter who owns the real estate, the easement benefits or burdens the successor owner of the property. The insurable amount of the owner’s title policy covering an easement estate shall be the value of the easement estate at the time the title policy is issued. The insurable amount of the loan title policy covering an easement estate shall be the amount of the loan insured on the land covered in the policy.

4. Air Rights – Air rights relate to a specifically identified space above a tract of land. An example of the use of air rights in a commercial real estate transaction is a covered walkway above a street that connects two office buildings. Air rights may also be restricted in the United States by the Federal Aviation Administration, as that agency has the exclusive authority to define the navigable airspace for minimum flight altitudes, as well as airspace needed for takeoff and landing. Commercial real estate property owners may be required to waive or accept an exception in their title policies to air rights of land located near an airport (also called a navigation easement). The amount of a commercial real estate owner’s policy insuring air rights would be the sales price of the land, including the air rights, or if no sale, the value of the air rights. The loan policy covering air rights shall be the amount of the loan insuring the interest in the land covered in the policy.

5. Timber Rights – While timber is personal property once it is severed from the land, timber may be insured in a title policy if the timber has not been cut, and the owner of the land executes a timber deed for the timber in place. The insured estate will be fee simple only to the timber in place. The amount of an owner’s policy insuring timber rights would be the sales price of the timber land, or if no sale, the value of the timber land. The loan policy covering timber rights shall be the amount of the loan insuring the interest in the land covered in the policy.

With few exceptions, title insurance policies insure estates or interests in real property and do not insure personal property. Multiple estates or interests may be insured in the same title insurance policy, for example, fee simple and easement estates.

As said before, please feel free to contact us about commercial real estate ownership rights that we haven’t covered or if you have questions about some of the topics we have brought up.

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