After a long search for the right commercial property, you’ve finally found one to purchase. You have already met the seller, agreed on the price and terms and acquired a preliminary title report. After a quick scan, you determine the exceptions listed on the title are similar to those you’ve seen before.
Because you want to expedite the purchase process, you forget to review the title exceptions because the preliminary report seemed fine. However, not giving the title review process its due weight can lead to legal and financial risks.
Here are important reasons why you should include a title review in your commercial real estate property purchase checklist:
Vesting of title
When purchasing a commercial property, you need to identify all sellers and include them in the purchase and sale agreement and other additional documents. However, while this may seem straightforward, sometimes you may miss a pertinent party in the documents.
Covenants, Conditions & Restrictions, or CC&Rs, should be reviewed carefully to avoid compliance issues later. Depending on how you intend to use the property, a restriction can make or break your purchase.
It’s crucial that you review the easements that will survive after closing. The most common types of easements include parking, slope and drainage, and access utility. In some cases, an easement can burden a property, and you should determine if you can live with the terms of the easements or if they’ll interfere with your intended use.
You should be aware of different types of encroachments before purchasing a property. This is because some encroachments can expose you to lawsuits. For example, if the property lines aren’t clearly defined, the owner of the encroached-upon property can claim ownership or file a lawsuit for damages.
Reviewing a property title is the heartbeat of the due diligence process. This is especially true if you want to protect your investment.