Last blog we introduced some interesting issues that arise in real estate transactions where Title Insurance is offered in lieu of a missing Real Property Report and Compliance Certificate (RPR). This time we’ll look at a few more scenarios and discuss where Title Insurance can be helpful. Note: article updated January 2023.
Most often, an RPR is clearly the best or only way to go. While in other situations, title insurance can be quite helpful.
**WARNING: THIS AIN'T EASY**
It’s always frustrating when a simple and clean recommendation can’t be provided – sorry to say, but this area doesn’t lend itself to an easy answer. Most often, an RPR is clearly the best or only way to go. While in other situations, title insurance can be quite helpful. But it must be dealt with at the contract stage – not afterwards when a final unconditional contract falls into your lawyer’s lap.
Rush Closing:
Imagine you come across that perfect place. You know it’s priced too low. You know you can lease it out instantly. But the Seller needs a quick sale and doesn’t have an RPR to provide you. Or you’ve decided to list a home, and you’re getting the property ready but haven’t ordered a new RPR yet. A Buyer is introduced before you can blink and wants to close right away. What do you do?
Generally, most surveyors will provide a new Survey within 7-10 business days. A non-rush Compliance Certificate from most municipalities takes another 7-10 business days – for more money you can get both done a bit faster. If either the Buyer or the Seller wants to know the state of the property before removing conditions (always a good idea and an RPR will provide that information) the closing can’t be all that quick. And even if the Buyer and Seller are ok to wait until closing to get the RPR it still means the closing can’t happen for at least several weeks.
The solution? Title Insurance. It will allow everyone to move forward on the time-line everyone wants. There may be some draw backs (as noted last month), but if a rush closing is the most important issue, then Title Insurance is a helpful tool.
Lender Requirements:
This one is a bit frustrating for us lawyers. There seems to be a growing list of lenders, mostly from eastern Canada, that require a policy of Title Insurance whether you have a satisfactory RPR and Compliance or not. That’s unfortunate. First, it adds to the expense of the transaction (usually for the Buyer). Second, if a satisfactory RPR and Compliance is available it’s likely unnecessary. Third, it does not allow the flexibility for the Seller/Buyer and their realtor or lawyers to work out the best solution for that particular transaction. As noted above, this is a complex issue that does not lend itself to a one-size-fits-all approach. But alas, it happens. The solution? Title Insurance. What else can you do?
Known Compliance Issues:
In some situations, an RPR exists but the Compliance request has come back with an issue that is not easily fixed (such as an encroachment or set-back problem). Or it can’t be fixed prior to closing and a holdback isn’t easy to quantify. In that instance, if the compliance issue is identified and disclosed to the title Insurance company, you can request that the matter be ‘insured over’. On some occasions, the title Insurance company will do so and the transaction can proceed on schedule. Counterintuitively, many policies will specifically exclude known title issues (ignorance is bliss) so you need to be a bit careful about this one.
The New Alberta Reality:
All the above is true - but this trumps them all . . . the sad truth is that for much of 2022 and forward, the Alberta Land Titles Office has been crazy slow; registrations are taking between 3-4 months!! So there is no possible way to close on a transaction in the good 'ol fashion way where Title is actually transferred on or before the Closing (aka Possession) Date. And because of the huge time it takes Land Titles to register the transfer and mortgage, most lawyers will not want to use an alternative system called Protocol Closing (we may need to write a blog post on that some day) - essentially the new reality requires mortgage funding and payment of the cash to close waaaaaay before title is transferred and the mortgage is registered (confusing we know) - so the only option . . . Title Insurance (it guarantees title!) So yes: virtually all purchase transactions we do now will require that we get a policy of title insurance even if the Seller has a Real Property Report and Compliance. Sigh . . . so unfortunate.
Long Term Agreements for Sale (or other Vendor Financing arrangements):
In situations where the length of time the transaction will actually take to close is extremely long, the parties run the risk that the existing RPR at the time the parties entered into the agreement becomes stale or inaccurate prior to final closing. While such agreements/arrangement can (and should) call for the seller to obtain an updated RPR showing the current state of the property prior to transfer of title, under agreements for sale a significant amount of money will likely have been paid and if changes to the property have occurred and the parties are worried about compliance problems showing up late in the game, Title Insurance may help resolve it prior to the Buyer taking title. Keep in mind though that most policies will not cover zoning or building code violation issues that the insured (owner) created himself.
Commercial Property (with building):
Even though most commercial real estate transactions involve much more due diligence and investigation (prior to condition removal) than a residential purchase, and while the cost of insurance is significantly more expensive than a residential policy, sometimes it’s still a good idea to get that extra bit of coverage. There are generally more risks with commercial properties (hence the increased cost) as commercial building construction and zoning issues (just two examples) can present hidden issues that a survey and compliance letter may not disclose. Note though, that Title Insurance doesn’t cover everything – not even close. For example, it generally will not cover environmental hazards such as soil contamination or asbestos insulation.
I still generally recommend an RPR in most instances and I even recommend that you get one where title insurance is also obtained. I think that most real estate lawyers in Edmonton (and most of Alberta) would agree. But for most real estate investors, getting the deal done and done on time with the least amount of headaches is of paramount importance - and Title insurance can certainly help in that regard.
This is not meant to be, and should not be construed as, legal advice for your specific situation. You should contact one of our lawyers here at Richards + Company for further information and to discuss your particular facts and situation.
Darren L. Richards practices real estate and corporate/commercial law with Richards + Company in Edmonton, Alberta; he is rated as one of the ‘three best real estate lawyers’ in Edmonton.