The Importance of Title Insurance in Commercial Real Estate Transactions

The Importance of Title Insurance in Commercial Real Estate Transactions

Commercial real estate transactions in New Jersey involve substantial investment, extensive due diligence, and an array of legal complexities. Yet one critical component often receives less attention than it deserves: title insurance. In my experience representing commercial buyers, sellers, and lenders, I have seen how title insurance can either safeguard a transaction or, when neglected or misunderstood, leave parties vulnerable to serious legal and financial consequences.

What Title Insurance Actually Covers

Title insurance protects against financial loss due to defects in a property’s title that were not discovered during the initial title search. Unlike other types of insurance that cover future events, title insurance covers risks that already exist but have not yet been uncovered. These risks may include undisclosed liens, prior fraudulent conveyances, forged signatures in the chain of title, errors in public records, unrecorded easements, or claims by unknown heirs.

For commercial properties, these issues are often more difficult to detect and more damaging when they arise. A warehouse, office building, or retail complex typically involves multiple parcels, long-standing encumbrances, and complex histories of ownership. Without title insurance, a buyer or lender may inherit litigation, enforcement actions, or loss of access rights that could cripple the use or resale of the property.

Why Title Searches Are Not Enough

Many business owners assume that the title search conducted before closing is sufficient. That assumption is incorrect. A title search, no matter how thorough, is limited to what appears in public records. It cannot detect forged documents, clerical recording errors, or claims that have not yet been asserted. Even a diligent title agent may miss an improperly indexed lien or a misfiled deed. Title insurance acts as a financial backstop, ensuring that if a covered issue does arise, the insurer will defend the title or compensate for the loss.

Lender's vs. Owner's Policies in Commercial Transactions

In virtually every commercial real estate transaction involving financing, the lender will require a lender’s title insurance policy as a condition of the loan. However, this policy protects only the lender’s interest, not the buyer’s. If a title defect emerges post-closing, the buyer without an owner’s policy may be left to litigate the issue without support.

Commercial buyers should always obtain an owner’s title insurance policy.

In large transactions, particularly those involving redevelopment or assemblage of multiple lots, the policy can and should be negotiated to include expanded coverage, endorsements, and protections tailored to the nature of the deal. Common commercial endorsements may include zoning endorsements, contiguity endorsements, or access and subdivision endorsements—all of which can address unique risks present in commercial parcels.

Claims Are Not Hypothetical

I have represented clients forced into litigation because they relied solely on title searches or assumed that the seller’s representations were sufficient. In one case, a commercial buyer discovered after closing that an old mortgage had never been properly discharged, and the lender—long since absorbed into another institution—initiated foreclosure proceedings. The title search missed the issue, but the title insurance covered the legal defense and eventual resolution.

In another matter, a utility easement recorded in an ambiguous fashion rendered a portion of a commercial site unusable for its intended purpose. The buyer’s title insurance claim resulted in compensation that allowed them to modify their development plans without litigation.

Due Diligence and Legal Review Still Matter

While title insurance provides essential protection, it does not replace legal review or due diligence. There are exclusions and exceptions to every policy, and some claims may be denied if the buyer had prior knowledge of an issue. A competent attorney must review the title commitment, survey, and policy endorsements to confirm that the buyer’s interests are properly protected. This includes identifying unacceptable exceptions in Schedule B and negotiating their removal or insuring over them.

Conclusion

Title insurance in commercial real estate transactions is not a luxury or an afterthought—it is a critical safeguard. The complexity and cost of commercial deals demand thorough legal protection, and title insurance is a key part of that equation. Buyers who overlook or minimize the importance of title insurance do so at significant risk.

For more information about your legal rights or to schedule a consultation, please contact the Law Offices of Peter J. Lamont at www.pjlesq.com, call 201-904-2211, or email info@pjlesq.com.

Contact us today to discuss your business or legal matter. Put our 20+ years of legal experience to work for you.

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For detailed insights and legal assistance on topics discussed in this post, including litigation, contact the Law Offices of Peter J. Lamont at our Bergen County Office. We're here to answer your questions and provide legal advice. Contact us at (201) 904-2211 or email us at  info@pjlesq.com.

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About Peter J. Lamont, Esq.

Peter J. Lamont is a nationally recognized attorney with significant experience in business, contract, litigation, and real estate law. With over two decades of legal practice, he has represented a wide array of businesses, including large international corporations. Peter is known for his practical legal and business advice, prioritizing efficient and cost-effective solutions for his clients.

Peter has an Avvo 10.0 Rating and has been acknowledged as one of America's Most Honored Lawyers since 2011. 201 Magazine and Lawyers of Distinction have also recognized him for being one of the top business and litigation attorneys in New Jersey. His commitment to his clients and the legal community is further evidenced by his active role as a speaker, lecturer, and published author in various legal and business publications.

As the founder of the Law Offices of Peter J. Lamont, Peter brings his Wall Street experience and client-focused approach to New Jersey, offering personalized legal services that align with each client's unique needs and goals​.

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