In the complex world of commercial real estate, one tool often recommended to safeguard a buyer’s investment is title insurance. Whether you are acquiring a retail plaza, an industrial warehouse, or an office tower, title insurance can be critical in protecting your legal rights and financial interests. In Ontario, where property laws are nuanced and transactions often involve significant sums, understanding what title insurance covers and what it doesn’t is essential for buyers and lenders alike.
What Is Title Insurance?
Title insurance is a form of indemnity insurance that protects real estate owners and lenders against financial loss due to defects in a property’s title. A title is the legal ownership of a piece of property. Problems with a title can arise from issues such as unpaid liens, encroachments, zoning violations, errors in public records, or even fraud.
In Ontario, title insurance is typically obtained at the time of closing. It is a one-time premium, meaning it’s paid once and covers the insured party for as long as they hold an interest in the property.
Who Is Covered by Title Insurance?
In commercial transactions, both the purchaser and the mortgage lender can be insured under separate title insurance policies. The buyer’s policy protects their ownership interest, while the lender’s policy secures the lender’s priority in the mortgage. If a title issue arises that impacts the lender’s security, the insurer may compensate the lender for the resulting loss or resolve the issue directly.
It is important to note that a lender’s title insurance policy does not protect the property owner. Each party must have their own policy to ensure complete coverage of their interests.
Why Title Insurance Matters in Commercial Deals
Commercial real estate deals are often more complex than residential transactions. Larger land parcels, multiple tenants, historical title transfers, and various regulatory overlays increase the risk of unforeseen title problems. Title insurance is a safety net, giving buyers and lenders peace of mind that certain risks will be managed without lengthy legal battles.
For example, a property may have an old easement or right-of-way that was never disclosed. Depending on the policy’s terms, a title insurance policy might cover the cost of addressing or compensating for that defect.
Common Issues Title Insurance Can Cover
Title insurance can protect against a wide range of potential problems, including:
- Title defects that render the title invalid or unmarketable;
- Errors or omissions in public records;
- Outstanding liens from unpaid property taxes, utilities, or contractors;
- Encroachments of buildings or structures over property boundaries;
- Survey errors;
- Zoning bylaw violations (depending on the policy); and
- Fraud and forgery involving past transactions.
Importantly, title insurance typically covers both known risks that have been disclosed and certain unknown or undetectable risks that emerge after closing.
What Title Insurance Does Not Cover
Despite its benefits, title insurance is not a cure-all. It will not cover every risk associated with property ownership or development. Common exclusions include:
- Environmental contamination or hazards;
- Matters known to the insured but not disclosed to the insurer;
- Issues that arise after the date of policy issuance (unless covered by a specific endorsement);
- Governmental expropriation or zoning changes after policy issuance; and
- Building code violations related to post-closing construction.
For these reasons, title insurance should be considered part of a larger due diligence strategy, not a replacement for a thorough legal and technical review.
The Role of a Real Estate Lawyer in Title Insurance
In Ontario, real estate lawyers are pivotal in facilitating title insurance. They review title searches, identify issues, and advise clients on whether to proceed with insurance and which policy to choose. Most policies are issued through a lawyer who acts as an intermediary with the title insurer.
Legal counsel will also negotiate endorsements or exceptions, particularly in commercial deals requiring additional coverage for unique property attributes. For example, a property with existing structures might benefit from a legal access endorsement or a leased premises endorsement.
Types of Title Insurance Policies in Ontario
There are two primary categories of title insurance policies in Ontario:
- Owner’s Policy: Protects the buyer’s interest in the property. Typically, the policy amount equals the purchase price.
- Lender’s Policy: Protects the financial institution’s mortgage interest. The policy amount is equal to the mortgage principal.
Some insurers offer extended coverage for commercial transactions, including zoning compliance, leased improvements, and legal access. These endorsements are often critical for larger developments or income-generating properties.
The Cost of Title Insurance
Title insurance premiums in Ontario are based on the value of the property and the amount of coverage. Due to their size and complexity, commercial properties often incur higher premiums than residential policies. However, these are still typically minor compared to the legal fees or financial losses that could result from a title defect.
Title insurance costs are a one-time payment at closing, and depending on the transaction value and required endorsements, they can vary widely in cost.
How Title Insurance Helps Facilitate Faster Closings
One often-overlooked benefit of title insurance is its role in expediting transactions. When certain risks cannot be resolved in time, such as a missing discharge for a paid-off mortgage, title insurance may allow the deal to close on schedule while the insurer assumes the risk of resolving the issue later.
This is particularly valuable in competitive commercial markets where delay can result in the loss of a property or contractual penalties.
Fraud Protection: A Growing Concern in Ontario
Commercial property fraud is on the rise in Ontario. Fraudsters have increasingly targeted commercial buildings, particularly vacant or underutilized ones, using forged documents to take out fraudulent mortgages or sell the property without authorization.
A title insurance policy can be a vital tool in such cases. If a buyer or lender suffers a loss due to identity theft or fraudulent conveyance, the insurer may compensate them for their financial loss, potentially saving them from lengthy and expensive litigation.
The Importance of Experienced Legal Guidance in Commercial Real Estate Transactions
Title insurance is not mandatory in Ontario, but is increasingly considered essential in commercial real estate transactions. It offers buyers and lenders peace of mind that, should certain problems arise with the title or property, they won’t be left to shoulder the financial burden alone.
However, title insurance is not a replacement for legal due diligence. Instead, it should complement the legal and technical review conducted during the transaction. When used appropriately, title insurance can help prevent delays, reduce risk, and protect your investment for the long term.
Contact Bader Law for Elite Commercial Real Estate in Mississauga & Oakville
If you are considering a commercial real estate transaction in Ontario and have questions about title insurance, the knowledgeable business and real estate lawyers at Bader Law are here to help you navigate the process with confidence and clarity. Our firm supports a diverse range of business clients, from local family-run operations to major enterprises, by providing legal guidance that aligns their real estate holdings with long-term growth objectives. To book a consultation, please call (289) 652-9092 or contact us online.