Buying commercial real estate is an investment of both time and money. Amongst complex negotiations, financing, inspections and contract terms, there is one critical issue that should never be overlooked: title defects.
A title problem discovered shortly before closing, or even after the transaction is complete, can create financial and legal complications. If you are planning to purchase commercial property, understanding common title issues can help prevent costly surprises and protect your investment.
The importance of due diligence
The property title represents legal ownership along with the rights associated with it. Before a commercial real estate transaction can close, the buyer must be confident that the seller has the legal right to transfer that ownership and that there are no encumbrances or undisclosed claims on the property.
The buyer needs to conduct due diligence to identify any issues that could affect ownership rights or the property’s marketability.
Several types of title defects can arise during the due diligence period. One of the most common problems involves outstanding liens against the property, which may include:
- Tax liens
- Contractor or mechanic’s liens
- Mortgage liens
- Judgment liens resulting from lawsuits
An outstanding lien may need to be satisfied before closing, and a buyer can refuse to proceed until the issue is resolved.
When large parcels of land are involved in a real estate transaction, boundary disputes are common. A survey of the property may reveal encroachments, access issues or discrepancies between legal descriptions and actual property boundaries. These issues can impact development plans and property use.
Mistakes in public records often occur. Errors in legal descriptions, deeds or prior transfers can create uncertainty. Even a minor clerical mistake may require action before the transaction can be completed.
As part of due diligence, it’s crucial to have a legal representative who can help identify and resolve title concerns. By addressing issues early, a buyer can move toward closing with greater confidence about their investment.
