Title defects can create serious problems in commercial real estate transactions because ownership is only part of what a buyer expects to acquire. Commercial properties often depend on legal access, easements, parking rights, utility rights, development rights, lien priority, and clear authority to transfer the property. A defect affecting any of those interests can interfere with financing, leasing, redevelopment, refinancing, or a later sale.
When a title problem appears before or after closing, the dispute may involve several different parties and legal theories. A buyer may assert contract claims against the seller, seek coverage under a title insurance policy, challenge an adverse interest through a quiet title action, or pursue claims involving escrow, recording errors, or defective transaction documents. Determining the appropriate remedy requires careful review of the purchase agreement, deed, title materials, survey, escrow file, insurance policy, and recorded chain of title.
What Can Constitute a Commercial Real Estate Title Defect?
A title defect is generally a condition that adversely affects ownership of real property or another interest associated with the property.
Potential commercial title defects include:
- Competing ownership claims;
- Previously conveyed interests;
- Unreleased deeds of trust;
- Judgment liens;
- Tax liens;
- Mechanics liens;
- Undisclosed easements;
- Restrictive covenants;
- Boundary disputes;
- Encroachments;
- Access problems;
- Incorrect legal descriptions;
- Unrecorded lease rights;
- Purchase options or rights of first refusal;
- Forged deeds;
- Unauthorized conveyances; and
- Recording or priority errors.
The legal significance of the defect depends on how it affects the buyer’s ownership and intended use of the property.
Title Problems Can Affect More Than Ownership
A buyer may hold record title to commercial property and still face a significant title-related problem.
For example, an undisclosed easement may interfere with:
- A planned building addition;
- Parking configuration;
- Loading areas;
- Driveway access;
- Utility installation;
- Stormwater systems;
- Signage;
- Outdoor storage; or
- Future subdivision.
An unreleased lien can interfere with refinancing. A boundary problem can reduce developable area. An unrecorded tenant right may interfere with possession. A competing ownership claim can prevent a future sale.
The business impact of a title defect should therefore be evaluated separately from the technical question of whether record title transferred.
The Purchase Agreement Is Usually the First Contract to Review
Commercial purchase and sale agreements commonly establish detailed procedures for reviewing title before closing.
Those provisions may address:
- Delivery of a preliminary title report;
- Delivery of exception documents;
- Survey review;
- Buyer objections;
- Seller cure obligations;
- Permitted exceptions;
- Closing extensions;
- Termination rights;
- Escrow instructions; and
- Post-closing title representations.
A buyer that discovers a problem should determine whether the issue was identified during due diligence and whether the contractual objection procedures were followed.
Title Objection Deadlines Can Affect the Buyer’s Rights
Commercial agreements often require buyers to object to unacceptable title matters within a specific period.
If the buyer fails to object, certain title matters may become permitted exceptions under the agreement.
Disputes may arise over:
- When the title report was delivered;
- Whether all supporting documents were provided;
- Whether the buyer objected on time;
- Whether a newly recorded item reopened the objection period;
- Whether the seller agreed to cure the issue;
- Whether the objection was later waived; and
- Whether closing occurred with knowledge of the defect.
Transaction emails and escrow communications can become important evidence concerning whether rights were preserved.
Permitted Exceptions Can Limit Later Claims
A purchase agreement may define specific matters that the buyer agrees to accept at closing.
Permitted exceptions may include:
- Recorded easements;
- CC&Rs;
- Utility rights;
- Taxes not yet delinquent;
- Existing leases;
- Matters shown on an approved survey;
- Recorded development restrictions; and
- Other items accepted during due diligence.
If the buyer knowingly accepts an exception, the seller may later argue that the buyer cannot treat that same condition as a title breach.
The buyer may nevertheless dispute whether the actual condition is materially broader than the disclosed exception.
Seller Cure Obligations Depend on the Contract Language
Not every title objection must necessarily be cured by the seller.
Some agreements require removal of specific monetary liens but allow the seller to decline to cure other objections.
Mandatory cure items may include certain:
- Seller financing liens;
- Judgment liens created by the seller;
- Mechanics liens arising from seller work;
- Other voluntary monetary encumbrances; and
- Title defects the seller expressly agreed to remove.
For other matters, the buyer may have the choice of accepting the condition or terminating the transaction.
Preliminary Title Reports and Final Policies Serve Different Purposes
A preliminary title report is an important due diligence document, but it is not itself the final title insurance contract.
The preliminary report commonly identifies:
- Record ownership;
- Deeds of trust;
- Liens;
- Easements;
- Restrictions;
- Taxes;
- Recorded leases; and
- Other matters the title insurer expects to except from coverage.
The final title insurance policy determines the insured risks, exclusions, exceptions, conditions, endorsements, and policy limits that govern a later title insurance claim.
Title Insurance Does Not Cover Every Property Problem
Title insurance generally protects against specified defects affecting insured title as of the policy date, subject to the actual policy terms.
Potentially insured risks may include certain:
- Ownership defects;
- Undisclosed liens;
- Priority problems;
- Invalid recorded instruments;
- Forgery-related title defects;
- Errors in public records;
- Unknown encumbrances; and
- Other covered adverse interests.
Coverage should never be assumed based solely on the general type of problem. The policy must be reviewed to determine whether the claimed defect is covered, excluded, or specifically excepted.
Owner’s and Lender’s Title Policies Protect Different Interests
Commercial purchases involving financing may result in both an owner’s title policy and a lender’s policy.
The owner’s policy generally insures the buyer’s ownership interest.
The lender’s policy generally insures the lender’s deed of trust and its priority, subject to the policy terms.
A lender’s title policy does not automatically protect the owner’s equity or create coverage for every loss suffered by the property owner.
Commercial Endorsements Can Expand Protection
Commercial buyers and lenders may obtain endorsements addressing transaction-specific risks.
Depending on underwriting requirements, endorsements may concern:
- Legal access;
- Contiguity;
- Survey matters;
- Restrictions;
- Zoning-related risks;
- Future advances;
- Leasehold interests;
- Tax parcels;
- Subdivision issues;
- Environmental lien risks; and
- Other property-specific matters.
The availability and wording of each endorsement should be verified rather than assumed.
Policy Exceptions Can Be Decisive
A title insurer may deny coverage because the disputed matter appears as a specific exception in the final policy.
Exceptions may identify:
- An existing easement;
- A deed of trust;
- CC&Rs;
- Recorded leases;
- Tax matters;
- Survey conditions;
- Known encroachments;
- Development agreements; or
- Other identified burdens.
If the policy expressly excludes the particular interest from coverage, the buyer may need to evaluate contractual or other remedies instead of relying solely on the insurer.
General Policy Exclusions Should Also Be Reviewed
Title policies generally contain exclusions in addition to property-specific exceptions.
Depending on the policy, exclusions may concern matters:
- Created or agreed to by the insured;
- Arising after the policy date;
- Known to the insured but not properly disclosed;
- Related to governmental regulation; or
- Otherwise outside the insured title risks.
A coverage dispute may therefore turn on whether the problem was preexisting or created by the insured after acquisition.
Title Insurance Can Include a Defense Obligation
When another party asserts a covered adverse claim against the insured’s title, the policy may require the title insurer to provide a defense according to the policy terms.
Disputes can involve:
- Whether the underlying claim is covered;
- Whether an exception applies;
- Whether notice was timely;
- Who controls the defense;
- Whether the insurer may cure the title defect instead; and
- Which portions of the litigation concern insured title.
A commercial owner receiving a lawsuit or adverse title demand should consider providing notice to its title insurer promptly.
The Insurer May Attempt to Cure the Defect Instead of Paying Damages
A title claim does not necessarily result in immediate payment to the insured.
Depending on the policy, an insurer may have options to:
- Defend the insured;
- Negotiate with the adverse claimant;
- Obtain a release;
- Correct a recording problem;
- Acquire an outstanding interest;
- Pursue litigation to establish title; or
- Pay a covered loss.
A property owner should therefore review the insurer’s contractual rights before entering a separate settlement that could affect coverage.
The Measure of Title Insurance Loss May Be Limited
A title defect may produce business losses that exceed the amount compensable under the title policy.
A commercial buyer may claim consequences involving:
- Lost development opportunities;
- Lost tenants;
- Financing costs;
- Lost sales;
- Construction redesign;
- Business interruption;
- Carrying costs; and
- Reduced property value.
The title policy may use a specific measure of insured loss and may not cover every consequential business expense.
Other responsible parties may need to be evaluated separately.
California Grant Deeds Provide Limited Implied Covenants
California Civil Code Section 1113 provides limited implied covenants when the word “grant” is used in a conveyance of fee simple property unless the deed states otherwise.
The implied covenants generally concern whether the grantor:
- Previously conveyed the same estate or interest to another party; and
- Created or suffered specified encumbrances affecting the property.
Those protections are narrower than a comprehensive warranty against every defect that may affect title.
A Grant Deed Is Not an Unlimited Warranty Against Historical Defects
A defect created by a prior owner may present different issues from an encumbrance created by the immediate seller.
A buyer may therefore need to look beyond the deed to:
- Express purchase agreement representations;
- Seller indemnities;
- Title insurance;
- Escrow obligations;
- Prior conveyances; and
- Claims against the person asserting the adverse interest.
Commercial buyers should not assume that use of a grant deed transfers all historical title risk to the seller.
Seller Representations Can Create Independent Claims
Commercial purchase agreements may contain express representations concerning ownership and property rights.
These may address:
- Authority to sell;
- Existing leases;
- Pending litigation;
- Unrecorded agreements;
- Purchase rights;
- Options;
- Property-related claims;
- Condemnation proceedings;
- Service agreements; and
- Other interests affecting the property.
If those representations were inaccurate, the buyer may have contractual remedies regardless of whether the title insurer covers the same loss.
Survival Clauses Can Limit Post-Closing Claims
Many commercial purchase agreements provide that representations and warranties survive closing only for a negotiated period.
The agreement may also establish:
- Notice deadlines;
- Minimum claim thresholds;
- Deductibles;
- Liability caps;
- Exclusive remedies;
- Consequential damages limitations; and
- Procedures for making post-closing claims.
A buyer discovering a title issue should review these limitations immediately.
Known but Undisclosed Title Problems Can Support Additional Claims
In appropriate circumstances, a buyer may allege that the seller knew about a title problem but failed to disclose it.
Potential issues may include:
- A boundary dispute;
- An unrecorded easement;
- A competing ownership claim;
- An adverse possession assertion;
- A tenant purchase option;
- A right of first refusal;
- Pending litigation; or
- An access dispute.
Whether the facts support fraud, concealment, breach of contract, or another theory depends on the parties’ communications, contractual obligations, knowledge, reliance, and damages.
As-Is Language Does Not Automatically Resolve Title Issues
Commercial transactions often contain broad as-is provisions relating to the property’s physical condition and investment risks.
The effect of that language depends on the contract and claim asserted.
An as-is provision concerning property condition does not necessarily eliminate express representations that the seller owns the property or possesses authority to convey it.
The provision should also be evaluated separately from claims alleging intentional concealment or fraud.
Recording Priority Can Determine Which Interest Prevails
California’s recording statutes can become central when multiple parties claim inconsistent interests in the same commercial property.
California Civil Code Section 1214 generally protects a subsequent purchaser or mortgagee that acquires an interest in good faith for valuable consideration and records before an earlier unrecorded conveyance.
Priority disputes can therefore involve:
- The execution dates of competing instruments;
- Delivery of deeds;
- Recording dates;
- Whether consideration was paid;
- Whether the later party acted in good faith; and
- Whether the later party had notice of the earlier interest.
Notice Can Be Central to Bona Fide Purchaser Status
A party seeking protection as a bona fide purchaser generally cannot have legally significant notice of the competing interest.
Evidence concerning notice may include:
- Recorded documents;
- Physical possession by another party;
- Tenant occupancy;
- Visible access rights;
- Survey conditions;
- Prior correspondence;
- Contract disclosures;
- Escrow documents; and
- Other circumstances suggesting further investigation was necessary.
The absence of a recorded document does not necessarily eliminate every notice issue.
Unrecorded Lease Rights Can Create Unexpected Problems
A commercial buyer may discover after acquisition that an existing occupant claims rights exceeding those described in the seller’s lease schedule.
Potential disputes may involve:
- Unrecorded lease amendments;
- Extension options;
- Expansion rights;
- Parking rights;
- Purchase options;
- Rights of first refusal;
- Exclusive use rights; and
- Other tenant agreements.
Tenant estoppel certificates and a complete lease review can reduce this risk before closing.
Options and Rights of First Refusal Can Affect a Sale
An existing option or right of first refusal can interfere with a transaction if the holder’s rights were not properly addressed.
Litigation may focus on:
- Whether the right remained valid;
- Whether the sale triggered it;
- Whether required notice was provided;
- Whether the holder exercised on time;
- Whether the buyer knew about the right; and
- Whether the interest was recorded.
A buyer proceeding despite a disputed purchase right may face litigation seeking to affect title to the property.
Unreleased Deeds of Trust Can Delay Future Transactions
A previously satisfied loan may continue appearing in the chain of title because the deed of trust was never properly reconveyed.
Resolving the issue may require:
- Locating the former lender;
- Obtaining payoff evidence;
- Obtaining or recording a reconveyance;
- Working with a successor financial institution;
- Using available statutory procedures; or
- Working with the title insurer.
An old lien can interfere with refinancing or sale even when no debt remains due.
Judgment Liens Can Produce Priority Disputes
A properly recorded judgment can create a lien affecting specified real property interests of the judgment debtor.
Commercial disputes may concern:
- Whether the debtor owned the property when the lien attached;
- Whether the judgment remains enforceable;
- Whether it was satisfied;
- Whether the lien identifies the correct debtor;
- Whether another interest has priority; and
- Whether the lien affects the property being transferred.
Escrow and title companies commonly require identified judgment liens to be resolved before closing.
Mechanics Liens Can Affect Recently Improved Commercial Property
A buyer acquiring recently constructed or renovated property should consider whether contractors, subcontractors, or suppliers remain unpaid.
Potential issues may involve:
- Recorded mechanics liens;
- Work completed shortly before closing;
- Outstanding contractor invoices;
- Retention;
- Conditional releases;
- Unconditional releases;
- Construction disputes; and
- Claims that have not yet been recorded.
Closing procedures may use lien releases, escrow holdbacks, indemnities, and title underwriting requirements to address some of these risks.
Legal Description Errors Can Create Serious Ownership Problems
A deed may fail to describe the property the parties intended to transfer.
Potential problems include:
- Omitted parcels;
- Incorrect lot numbers;
- Transposed measurements;
- Incorrect metes and bounds descriptions;
- Missing easement parcels;
- Descriptions inconsistent with the survey; and
- Descriptions inconsistent with the purchase agreement.
The appropriate remedy depends on the source of the error and whether third-party rights have arisen after the defective conveyance.
Reformation May Be Available for Certain Document Errors
In appropriate circumstances, a party may seek reformation when a deed or other written instrument does not accurately express the agreement the parties actually made.
Relevant evidence may include:
- The purchase agreement;
- Prior drafts;
- Escrow instructions;
- Surveys;
- Negotiation records;
- Emails;
- Closing documents; and
- Evidence showing the property the parties intended to transfer.
Reformation generally concerns correction of the written instrument rather than creation of an agreement that did not previously exist.
Forgery and Unauthorized Deeds Can Create Competing Ownership Claims
Forgery or lack of authority can produce particularly serious title disputes.
Commercial entities may also face disputes when a deed was executed by a person who allegedly lacked authority to bind the entity that owned the property.
Evidence may include:
- Operating agreements;
- Corporate resolutions;
- Partnership agreements;
- Trust documents;
- Member or manager consents;
- Notary records;
- Escrow records;
- Signature evidence; and
- Communications concerning authority.
Later purchasers and lenders can make these cases substantially more complicated because priority and notice issues may also arise.
Entity Authority Should Be Confirmed Before Closing
Commercial property is frequently owned by LLCs, partnerships, corporations, trusts, and investment entities.
A buyer and title company may require evidence showing that the person signing the deed has authority to complete the transaction.
Relevant documents may include:
- Operating agreements;
- Manager resolutions;
- Member consents;
- Corporate resolutions;
- Partnership authorizations;
- Certificates of trust; and
- Incumbency or authority certificates.
Authority questions should be resolved before recording whenever possible.
Boundary and Encroachment Conditions Can Become Title Claims
A commercial survey may reveal that an improvement crosses a property line or occupies an easement area.
Potential encroachments may involve:
- Buildings;
- Walls;
- Parking areas;
- Driveways;
- Loading facilities;
- Fences;
- Drainage improvements;
- Utility equipment;
- Signs; and
- Roof overhangs.
Whether the issue is covered by title insurance may depend on the policy form, survey coverage, endorsements, and specific exceptions.
Legal Access Should Be Distinguished From Physical Access
A commercial parcel may have an existing driveway without having a permanent legal right to use it.
Access disputes can significantly affect:
- Customer traffic;
- Truck deliveries;
- Tenant operations;
- Emergency access;
- Financing;
- Development approvals;
- Property valuation; and
- Future marketability.
Commercial due diligence should verify the recorded or otherwise enforceable legal basis for access.
Restrictive Covenants Can Limit Development Rights
A buyer may obtain clear ownership but discover that recorded restrictions materially limit the property’s intended use.
Restrictions may address:
- Permitted uses;
- Building height;
- Setbacks;
- Parking;
- Architectural approval;
- Signage;
- Hours of operation;
- Subdivision;
- Access; and
- Maintenance obligations.
The buyer should evaluate whether the restriction is enforceable, who possesses enforcement rights, and whether the title policy excepts the restriction from coverage.
Surveys Can Reveal Defects That Are Not Obvious From Recorded Documents
A survey may show physical conditions that a title report alone does not fully explain.
These may include:
- Boundary discrepancies;
- Encroachments;
- Improvements within easement areas;
- Shared access;
- Unrecorded physical uses;
- Parking conflicts;
- Utility conditions; and
- Structures crossing parcel lines.
Survey findings should be reviewed together with the underlying title documents.
Escrow Errors Can Contribute to Title Defects
Commercial closings often depend on escrow accurately following detailed written instructions.
Potential disputes may involve:
- Failure to obtain required lien releases;
- Incorrect recording order;
- Recording the wrong deed;
- Improper payoff processing;
- Disbursement before conditions were satisfied;
- Failure to obtain required signatures;
- Incorrect legal descriptions; and
- Closing despite an unresolved title objection.
Liability depends on the escrow holder’s instructions, duties, and conduct in the particular transaction.
Recording Order Can Affect Priority
Commercial transactions may require several instruments to be recorded in a coordinated sequence.
These can include:
- The grant deed;
- The lender’s deed of trust;
- Easements;
- Subordination agreements;
- Memoranda of lease;
- CC&Rs;
- Assignments; and
- Other transaction documents.
An incorrect sequence may create a priority issue that did not exist in the parties’ intended transaction.
Quiet Title Actions Can Resolve Competing Claims
California Code of Civil Procedure Section 760.020 allows a party to bring an action to establish title against adverse claims to real or personal property.
In commercial real estate disputes, quiet title may be used to resolve claims involving:
- Ownership;
- Deed validity;
- Liens;
- Boundary rights;
- Easements;
- Adverse possession;
- Priority; and
- Other interests affecting title.
The objective is generally to obtain a judicial determination identifying the parties’ respective property rights.
Quiet Title Pleadings Require Specific Property Information
A California quiet title complaint generally must identify the property, the plaintiff’s claimed interest, the adverse claims being challenged, the date as of which title determination is requested, and the relief sought.
Accurate property identification is especially important in commercial cases involving only a portion of a larger parcel or a disputed easement area.
A Lis Pendens Can Affect the Property During Litigation
A party asserting a qualifying real property claim may record a notice of pendency of action, commonly called a lis pendens, subject to California procedural requirements.
A lis pendens can affect:
- Sale of the property;
- Refinancing;
- Construction financing;
- Development transactions; and
- Other dealings requiring clear title.
An improperly recorded lis pendens may be subject to a motion for expungement, making procedural compliance important.
Title Defects Can Trigger Loan Defaults
Commercial loan documents commonly contain representations concerning ownership, liens, title, and collateral.
A significant title problem may therefore create separate financing consequences.
Potential lender responses may include:
- Default notices;
- Suspension of future advances;
- Requirements to cure the title defect;
- Refusal to refinance;
- Additional reporting obligations; and
- Other contractually available remedies.
Borrowers should review lender notice requirements when a substantial adverse title claim develops.
Commercial Tenants Can Also Be Affected
A title defect may interfere with rights the landlord has promised to tenants.
Lease-related effects may involve:
- Parking;
- Access;
- Loading;
- Signage;
- Expansion rights;
- Outdoor use areas;
- Exclusive areas; and
- Other premises-related rights.
A title dispute can therefore create parallel claims among the buyer, seller, title insurer, neighboring property owner, lender, and commercial tenants.
Title Defects Can Delay Development Projects
A developer may discover a title problem after spending substantial money on design, entitlements, or preconstruction work.
The defect may interfere with:
- Building footprints;
- Density;
- Parking;
- Setbacks;
- Utility connections;
- Fire access;
- Drainage;
- Construction financing;
- Permit issuance; and
- Project scheduling.
Damages analysis may require distinguishing losses caused by the title defect from ordinary development and market risks.
Title Claims Should Be Submitted Promptly
A property owner discovering a potential insured title defect should review the policy’s notice requirements and provide written notice where appropriate.
Useful claim materials may include:
- The final title policy;
- Endorsements;
- Purchase agreement;
- Deed;
- Preliminary title report;
- Survey;
- Recorded instruments;
- The adverse claim;
- Litigation documents;
- Correspondence; and
- Evidence concerning the financial impact.
Maintaining a clear record of communications with the insurer can become important if a coverage dispute later develops.
A Coverage Denial Should Be Compared With the Complete Policy
A denial letter should identify the contractual basis for the insurer’s position.
The insured should evaluate:
- Whether the claimed defect falls within an insured risk;
- Whether a specific exception applies;
- Whether an exclusion applies;
- Whether an endorsement modifies coverage;
- Whether the condition arose before the policy date;
- Whether the insured knew of the problem;
- Whether the insured created the condition; and
- Whether the adverse claim actually affects insured title.
The preliminary title report alone should not substitute for analysis of the issued policy.
Multiple Claims Can Exist Against Different Parties
A single title defect may create potential claims involving several participants.
Depending on the facts, those parties may include:
- The seller;
- The title insurer;
- The escrow holder;
- A neighboring property owner;
- A lien claimant;
- A prior owner;
- A surveyor;
- A fraudulent actor; and
- Other parties asserting property interests.
Each potential claim may involve different elements, defenses, remedies, and deadlines.
Settlement May Focus on Curing the Defect Rather Than Paying Damages
Commercial property owners often benefit more from obtaining usable title than from receiving money while the title problem remains unresolved.
A settlement may therefore involve:
- Release of a lien;
- Reconveyance of a deed of trust;
- A corrective deed;
- A quitclaim deed;
- A new easement;
- Modification of an existing easement;
- A boundary adjustment;
- Termination of an option;
- Release of a purchase right;
- Subordination;
- An indemnity; or
- A title insurance endorsement.
The proper solution should address the owner’s future ability to operate, develop, finance, and sell the property.
Corrective Documents Must Be Drafted Carefully
A settlement intended to fix title should be implemented through accurate documents.
Potential recording instruments may include:
- Corrective deeds;
- Reconveyances;
- Releases;
- Easement agreements;
- Boundary agreements;
- Subordination agreements;
- Termination documents; and
- Other instruments affecting the chain of title.
Legal descriptions should be verified carefully before recording because an inaccurate corrective instrument can create additional title problems.
Document Preservation Can Determine the Strength of the Claim
Title litigation frequently depends on documents generated during the original transaction.
Businesses should preserve:
- The purchase agreement;
- Amendments;
- Deeds;
- Title reports;
- The final title policy;
- Endorsements;
- Surveys;
- Escrow instructions;
- Closing statements;
- Seller representations;
- Due diligence correspondence;
- Loan documents;
- Entity authorization records;
- Appraisals; and
- Communications concerning the disputed interest.
The buyer’s knowledge before closing can materially affect several potential claims, making preservation of the original due diligence record particularly important.
Commercial Buyers Can Reduce Title Risk Before Closing
Title due diligence should be tailored to the intended use of the property rather than treated as a purely administrative closing task.
A comprehensive review may coordinate:
- Title examination;
- Survey review;
- Physical inspection;
- Easement analysis;
- Lease review;
- Entity authority verification;
- Zoning and entitlement review;
- Construction history;
- Lender requirements;
- Seller representations; and
- Appropriate title endorsements.
A title condition that has little impact on one business may make another buyer’s proposed development impossible.
Did You Know?
In California, a grant deed provides only limited implied covenants under Civil Code Section 1113, so receiving a grant deed does not necessarily mean the seller has guaranteed against every title defect created before the seller acquired the property.
Protecting Commercial Property Interests When Title Defects Arise
Commercial title defects can affect ownership, access, development rights, financing, leasing, and future marketability. Resolving a title dispute often requires coordinated analysis of the purchase agreement, deed, recorded chain of title, title insurance policy, survey, escrow records, seller representations, and any competing third-party claims. Prompt investigation can help businesses preserve contractual, insurance, and real property remedies before the defect interferes further with the property’s operation or value.
Putterman Law represents commercial property owners, purchasers, sellers, developers, investors, and other businesses in disputes involving title defects, ownership claims, liens, easements, escrow matters, real estate contracts, and related litigation.
Learn more about real estate law services at Putterman Law
FAQs
What is a title defect in a commercial real estate transaction?
A title defect is generally a problem that adversely affects ownership or another interest associated with commercial property. Examples can include liens, competing ownership claims, easements, recording problems, boundary disputes, access defects, invalid deeds, or undisclosed purchase rights.
Does commercial title insurance cover every title defect?
No. Coverage depends on the title policy’s insured risks, exclusions, specific exceptions, endorsements, conditions, and limits. A property may have a genuine title problem that is nevertheless excluded from a particular insurance policy.
Can a commercial buyer make a claim against the seller after closing?
Potentially. Claims may arise from seller representations, deed covenants, contractual indemnities, fraud, concealment, or other obligations. The purchase agreement’s survival periods, notice requirements, liability limits, and permitted exceptions should be reviewed promptly.
Does a California grant deed guarantee clear title?
No. California Civil Code Section 1113 provides specified limited implied covenants when property is conveyed by grant deed, but those covenants do not constitute an unlimited warranty against every historical title defect.
Can an unrecorded interest affect a later commercial purchaser?
Potentially. California recording priority depends on issues including valuable consideration, good faith, notice, and the order in which competing interests are recorded. Physical possession or other facts may also create notice issues even when an interest does not appear in the public record.
What is the purpose of a quiet title action?
A quiet title action asks a California court to determine competing claims to property or an interest in property. Commercial quiet title litigation may involve ownership, liens, easements, deed validity, boundaries, priority, adverse possession, or other claims affecting title.
Can a title defect affect a commercial loan?
Yes. Serious title problems can affect lender lien priority, collateral value, future loan advances, refinancing, loan covenants, and the lender’s title insurance. Loan documents should be reviewed when a significant title claim arises.
Why is a survey important in a commercial real estate acquisition?
A survey can identify physical conditions that may not be apparent from a basic title search, including encroachments, boundary discrepancies, access conditions, improvements within easements, and other conflicts between recorded property rights and actual site conditions.
Can a title insurer cure a defect instead of paying the property owner?
Potentially. Depending on the policy, the insurer may have rights to defend title, negotiate with an adverse claimant, obtain releases, correct documents, acquire an outstanding interest, or otherwise cure a covered defect rather than immediately paying the claimed loss.
What records should be preserved after discovering a title defect?
Important records may include the purchase agreement, deed, preliminary title report, final title policy, endorsements, survey, escrow instructions, closing statement, seller representations, loan documents, recorded instruments, due diligence correspondence, and documents concerning the adverse claim.
