Which Endorsements Are Right for Your Transaction?

Part One of a Two-Part Series

A commercial real estate attorney representing a client that needs title insurance in a commercial real estate transaction must consider which endorsements would be best to provide the client with all the necessary title insurance protection. This two-part article addresses which American Land Title Association ('ALTA') endorsements are typical when representing a buyer, tenant, or lender in an acquisition or lease of commercial property. In addition, the article discusses a few non-ALTA endorsements that are available in many states.

Endorsements for Every Transaction

The following endorsements are applicable for almost every type of commercial sale/lease transaction:

1) ALTA 3 (unimproved land) and 3.1 (improved land), Zoning ' ALTA 3 insures the applicable zoning classification and authorized uses of the land only. ALTA 3.1 insures against a final court order prohibiting the present structure and against the removal or alteration of the present structure because of a certain violation of the zoning ordinance (i.e., building area, floor space, setbacks, height, or parking requirements).

2) ALTA 9.1 (unimproved land) and 9.2 (improved land), Restrictions, Encroachments, Minerals (10/17/98) ' ALTA 9.1 and 9.2 are 'comprehensive' endorsements that insure against violations of restrictions, encroachments on the insured parcel from adjoining land, and damage by reason of mineral development except as expressly excluded in Schedule B. Typically, before issuing this endorsement, underwriters will closely review the restrictions to confirm that there are no forfeiture provisions and that the existing use does not materially violate the restrictions. Underwriters will also determine if any encroachments or mineral rights exist, and if any violations of environmental covenants have been recorded. ALTA 9.2 includes not just current improvements, but also future contemplated improvements. Accordingly, the value of the future contemplated improvements should be included in the amount of the policy, if possible. As a practical note, ALTA 9 is similar to ALTA 9.1 and 9.2, but is issued to a lender.

3) ALTA 17 and 17.1, Access and Entry ' ALTA 17 is used in transactions with direct access to a street, and insures that the insured parcel abuts a named street, the street is physically open and publicly maintained, the insured parcel has actual pedestrian and vehicular access to such street, and the insured has a right to use existing curb cuts along the abutting street. ALTA 17.1 is used in transactions where there is indirect access to a street via an access easement. Note that appurtenant easements such as access easements should be listed in Schedule A of the policy as easement parcels.

4) ALTA 18 and 18.1, Tax Parcel ' ALTA insures against a loss if a single insured parcel is taxed as part of a larger parcel or fails to constitute a separate tax parcel. ALTA 18.1 is used in transactions involving multiple insured parcels (insuring against a loss if the insured parcels are not assessed pursuant to their assigned tax identification numbers, are taxed with any other land, or the easements, if any, described in Schedule A of the policy are cut off by nonpayment of real estate taxes or assessments against the servient estate).

5) ALTA 19 and 19.1, Contiguity ' ALTA 19 is used in transactions involving multiple insured parcels, and insures that two or more insured parcels are contiguous along defined lines or boundaries, and that there are no gaps separating the insured contiguous boundary lines. ALTA 19.1 is used in transactions involving one insured parcel (insuring contiguity between the insured parcel and another (typically easement) parcel).

6) Survey ' This endorsement typically insures that the land delineated on the survey is the same as the insured parcel. Note that ALTA 22 insures against any damage sustained by the failure of a [description of improvement] known as [street address] to be located on the insured parcel.

7) Subdivision ' This endorsement insures that the insured parcel constitutes one or more lawfully created parcels according to the subdivision laws of the state in which the insured parcel is located.

8) Fairway Endorsement ' This endorsement is appropriate when the owner of the insured parcel is a partnership or limited liability company and anticipates a change in partners or members, as appropriate, subsequent to the date of the policy. Under the policy, once the partnership or limited liability company dissolves, the policy terminates. This endorsement requires the policy to continue, notwithstanding the dissolution of the partnership or limited liability company or a change in the members, as long as the business continues.

As a practical note, title insurance for a tenant is typically recommended only when the tenant is entering into a long-term lease or a ground lease. Additionally, in 2001, ALTA adopted the ALTA 13 and 13.1 endorsements to replace the forms of Leasehold Owner's Policy and Leasehold Loan Policy that were decertified by ALTA.

Part Two of this series will discuss lender-only endorsements.

Sara K. Stock is an associate in the Corporate Department of the St. Louis office of Lewis Rice and Fingersh, LC. Her primary areas of practice include commercial real estate, banking, and mergers and acquisitions.

Part One of a Two-Part Series

A commercial real estate attorney representing a client that needs title insurance in a commercial real estate transaction must consider which endorsements would be best to provide the client with all the necessary title insurance protection. This two-part article addresses which American Land Title Association ('ALTA') endorsements are typical when representing a buyer, tenant, or lender in an acquisition or lease of commercial property. In addition, the article discusses a few non-ALTA endorsements that are available in many states.

Endorsements for Every Transaction

The following endorsements are applicable for almost every type of commercial sale/lease transaction:

1) ALTA 3 (unimproved land) and 3.1 (improved land), Zoning ' ALTA 3 insures the applicable zoning classification and authorized uses of the land only. ALTA 3.1 insures against a final court order prohibiting the present structure and against the removal or alteration of the present structure because of a certain violation of the zoning ordinance (i.e., building area, floor space, setbacks, height, or parking requirements).

2) ALTA 9.1 (unimproved land) and 9.2 (improved land), Restrictions, Encroachments, Minerals (10/17/98) ' ALTA 9.1 and 9.2 are 'comprehensive' endorsements that insure against violations of restrictions, encroachments on the insured parcel from adjoining land, and damage by reason of mineral development except as expressly excluded in Schedule B. Typically, before issuing this endorsement, underwriters will closely review the restrictions to confirm that there are no forfeiture provisions and that the existing use does not materially violate the restrictions. Underwriters will also determine if any encroachments or mineral rights exist, and if any violations of environmental covenants have been recorded. ALTA 9.2 includes not just current improvements, but also future contemplated improvements. Accordingly, the value of the future contemplated improvements should be included in the amount of the policy, if possible. As a practical note, ALTA 9 is similar to ALTA 9.1 and 9.2, but is issued to a lender.

3) ALTA 17 and 17.1, Access and Entry ' ALTA 17 is used in transactions with direct access to a street, and insures that the insured parcel abuts a named street, the street is physically open and publicly maintained, the insured parcel has actual pedestrian and vehicular access to such street, and the insured has a right to use existing curb cuts along the abutting street. ALTA 17.1 is used in transactions where there is indirect access to a street via an access easement. Note that appurtenant easements such as access easements should be listed in Schedule A of the policy as easement parcels.

4) ALTA 18 and 18.1, Tax Parcel ' ALTA insures against a loss if a single insured parcel is taxed as part of a larger parcel or fails to constitute a separate tax parcel. ALTA 18.1 is used in transactions involving multiple insured parcels (insuring against a loss if the insured parcels are not assessed pursuant to their assigned tax identification numbers, are taxed with any other land, or the easements, if any, described in Schedule A of the policy are cut off by nonpayment of real estate taxes or assessments against the servient estate).

5) ALTA 19 and 19.1, Contiguity ' ALTA 19 is used in transactions involving multiple insured parcels, and insures that two or more insured parcels are contiguous along defined lines or boundaries, and that there are no gaps separating the insured contiguous boundary lines. ALTA 19.1 is used in transactions involving one insured parcel (insuring contiguity between the insured parcel and another (typically easement) parcel).

6) Survey ' This endorsement typically insures that the land delineated on the survey is the same as the insured parcel. Note that ALTA 22 insures against any damage sustained by the failure of a [description of improvement] known as [street address] to be located on the insured parcel.

7) Subdivision ' This endorsement insures that the insured parcel constitutes one or more lawfully created parcels according to the subdivision laws of the state in which the insured parcel is located.

8) Fairway Endorsement ' This endorsement is appropriate when the owner of the insured parcel is a partnership or limited liability company and anticipates a change in partners or members, as appropriate, subsequent to the date of the policy. Under the policy, once the partnership or limited liability company dissolves, the policy terminates. This endorsement requires the policy to continue, notwithstanding the dissolution of the partnership or limited liability company or a change in the members, as long as the business continues.

As a practical note, title insurance for a tenant is typically recommended only when the tenant is entering into a long-term lease or a ground lease. Additionally, in 2001, ALTA adopted the ALTA 13 and 13.1 endorsements to replace the forms of Leasehold Owner's Policy and Leasehold Loan Policy that were decertified by ALTA.

Part Two of this series will discuss lender-only endorsements.

Sara K. Stock is an associate in the Corporate Department of the St. Louis office of Lewis Rice and Fingersh, LC. Her primary areas of practice include commercial real estate, banking, and mergers and acquisitions.