When purchasing commercial property, title issues can derail even the most carefully negotiated deals. From undisclosed liens to boundary disputes, problems with a property’s title can create significant financial and legal exposure for buyers, sellers, and lenders alike. Understanding how to identify and resolve title issues in commercial real estate acquisitions is essential to protecting your investment and ensuring a smooth closing.

Whether you’re acquiring an office building, retail center, industrial warehouse, or multi-family property, the due diligence phase must include a thorough examination of the title. Unlike residential transactions, commercial real estate acquisitions typically involve larger sums, more complex ownership structures, and higher stakes. A seemingly minor title defect can lead to costly litigation, delayed closings, or even loss of the property. If you’re facing challenges with a commercial acquisition, call (888) 844-9406 or email contactus@princelawassociates.com to speak with an experienced real estate attorney who can guide you through the process.

Understanding Title Issues in Commercial Real Estate Acquisitions

A property’s “title” represents the legal right to own, use, and transfer that property. Title issues arise when there are defects, encumbrances, or disputes that cloud ownership or create competing claims. In commercial real estate acquisitions, these problems can range from simple clerical errors to complex legal disputes involving multiple parties.

Common title issues include outstanding liens, easements that restrict property use, unresolved inheritance claims, forged documents, errors in public records, and boundary line disputes. Each of these can impact the buyer’s ability to obtain clear title and secure financing. Commercial lenders typically require a clean title before funding a transaction, making resolution of these issues critical to closing.

The title examination process involves reviewing public records, surveys, and other documents to verify the seller’s ownership and identify any encumbrances. This process is more extensive in commercial transactions than in residential deals, often requiring specialized title insurance and legal review by experienced counsel.

Common Title Issues in Commercial Property Transactions

Outstanding Liens and Judgments: Commercial properties often carry multiple liens, including mortgage liens, mechanic’s liens from unpaid contractors, tax liens from governmental authorities, and judgment liens from legal disputes. These must be satisfied or subordinated before transfer. Buyers who fail to discover liens may inherit the debt, giving creditors the right to foreclose on the property.

Easements and Right-of-Way Issues: Easements grant third parties limited rights to use portions of the property, such as utility companies accessing power lines or neighboring properties crossing the land for access. Undisclosed easements can restrict how the buyer uses the property, potentially affecting development plans or tenant operations. Some easements may not appear in public records, making physical surveys essential.

Boundary and Survey Disputes: Inaccurate legal descriptions, conflicting surveys, or encroachments from adjacent properties can create boundary disputes. A commercial building that encroaches onto neighboring land, or improvements that extend beyond property lines, can result in litigation and force expensive corrections. Updated surveys with accurate legal descriptions are critical to avoiding these problems.

Chain of Title Defects: Any break in the chain of title—the historical sequence of ownership transfers—creates uncertainty about who legally owns the property. Missing deeds, improperly executed documents, or fraud in prior transactions can invalidate the current seller’s claim to the property. Title insurance helps protect against these hidden defects, but resolving them often requires legal action.

Unresolved Estate and Probate Issues: When property has passed through estates, incomplete probate proceedings or disputes among heirs can cloud title. Commercial properties held in trusts, partnerships, or corporate entities may have additional complications if ownership transfers were not properly documented.

Legal Protections and Your Rights in Commercial Acquisitions

Commercial buyers have several legal tools to protect themselves against title issues. The purchase agreement should include comprehensive title contingencies that allow the buyer to review the title commitment, raise objections, and require the seller to cure defects before closing. These provisions give buyers leverage to negotiate repairs or price adjustments when problems surface.

Title insurance is essential in commercial real estate acquisitions. An owner’s title insurance policy protects the buyer against losses from covered title defects that existed before the purchase but were not discovered during the examination. Lender’s title insurance protects the mortgage holder’s interest. While title insurance provides financial protection, it does not prevent disputes—it compensates for losses after they occur.

The due diligence period is the buyer’s opportunity to conduct a thorough investigation of the property, including title examination, survey review, environmental assessments, and lease analysis. Buyers should work with qualified title companies and experienced real estate attorneys during this phase. Prince & Associates, PLLC has decades of experience guiding clients through commercial real estate transactions and helping resolve complex title issues before they derail deals.

Buyers also have the right to require the seller to deliver marketable title at closing. Marketable title is title free from reasonable doubt—title that a reasonable buyer would accept and that a title company would insure without exception. If the seller cannot deliver marketable title, the buyer may have grounds to cancel the contract or seek specific performance through the courts.

Practical Steps to Handle Title Issues in Commercial Acquisitions

Order a Comprehensive Title Examination Early: As soon as the purchase agreement is executed, order the title commitment and review it carefully with your attorney. The title commitment identifies all liens, encumbrances, easements, and exceptions to coverage. Early review gives you maximum time to address problems before closing deadlines.

Obtain an Updated Survey: A current ALTA/NSPS Land Title Survey prepared by a licensed surveyor shows the property boundaries, improvements, easements, encroachments, and other physical features. Compare the survey to the legal description in the title commitment to identify discrepancies. If encroachments or boundary issues exist, negotiate resolutions with affected parties or adjust the purchase price.

Review All Exception Documents: The title commitment will list “Schedule B exceptions”—items that are not covered by the title insurance policy. Obtain copies of all recorded documents referenced in the exceptions, including easements, covenants, restrictions, and prior deeds. Determine whether these items materially affect your intended use of the property.

Require the Seller to Cure Material Defects: If the title examination reveals liens, judgments, or other defects, the seller should be required to satisfy or remove them before closing. This may involve paying off creditors, obtaining lien releases, or quieting title through legal proceedings. Set clear deadlines for the seller to cure defects and maintain your right to terminate if they cannot.

Work with Experienced Legal Counsel: Commercial real estate acquisitions involve sophisticated legal issues that require experienced representation. An attorney can negotiate title contingencies, review survey and title documents, coordinate with the title company, and advise on risk allocation. For help navigating title issues in your commercial acquisition, call (888) 844-9406 or email contactus@princelawassociates.com today.

Mistakes to Avoid When Dealing with Title Issues

Failing to Budget for Title Cures: Resolving title defects can be expensive, particularly if litigation is required to quiet title or remove encumbrances. Buyers should maintain adequate reserves and build time into their closing schedule for unexpected title work.

Accepting Title Insurance Exceptions Without Analysis: Not all title exceptions are acceptable. Some may severely restrict property use or create liability. Review every exception with counsel and negotiate to remove or insure over problematic items.

Skipping the Survey: In commercial transactions, an updated survey is not optional. Relying on old surveys or legal descriptions without physical verification can lead to costly surprises after closing.

Ignoring Subordination Requirements: If the property has existing liens that will remain after closing (such as ground leases or utility easements), ensure your lender’s mortgage will have proper priority through subordination agreements.

Not Understanding Title Insurance Limitations: Title insurance covers only matters that existed before the policy date and that are not listed as exceptions. It does not protect against defects created after closing or matters disclosed in the title commitment that you accepted.

Frequently Asked Questions About Title Issues in Commercial Real Estate

Q: Can I close on a property with known title issues?

A: You may proceed if the title defects are acceptable to you and your lender, or if you obtain adequate insurance or indemnification. However, most commercial lenders require clear title before funding, and unresolved title issues can create substantial risk.

Q: How long does it take to resolve title issues?

A: Resolution time varies depending on the nature of the defect. Simple lien payoffs may take days, while quiet title actions or boundary disputes can take months or years. Build extra time into your acquisition schedule for title work.

Q: What happens if title issues are discovered after closing?

A: If the defect was covered by your title insurance policy and not listed as an exception, you can file a claim with the title insurer. If the defect was known or excepted, you may have limited recourse unless the seller breached warranties in the purchase agreement.

Q: Should I negotiate with the seller over title defects?

A: Yes. You can request the seller cure defects, agree to a purchase price reduction reflecting the cost to cure, or accept the property subject to certain encumbrances if they don’t materially affect your use. Your attorney can help negotiate appropriate solutions.

Protect Your Commercial Investment with Experienced Legal Counsel

Title issues in commercial real estate acquisitions can threaten your investment and delay or prevent closing. From identifying hidden encumbrances to negotiating cures and obtaining appropriate insurance, thorough due diligence and experienced legal representation are essential to protecting your interests. Don’t navigate these complex issues alone.

For experienced guidance on your commercial real estate acquisition, call (888) 844-9406 or email contactus@princelawassociates.com to speak with the attorneys at Prince & Associates, PLLC today.