This blog post examines leasehold title insurance, a type of coverage that often receives little attention but can be crucial for some tenants. While property buyers almost always get owner’s title insurance, tenants usually skip leasehold insurance without fully understanding the potential risks.
So what exactly does this insurance for leasehold titles do? Think of it as protection against losing your lease rights in case of title issues with the property. If someone challenges your right to be there and wins, the insurance provides financial compensation. It’s not bulletproof coverage, though – there are plenty of exceptions, including the usual insurance exclusions plus things like existing easements, mortgages that take priority over your lease, and whatever restrictions are already written into your lease agreement.
Whether you need this coverage really comes down to two main things: how long you’re planning to stay and how much money you’re putting into the space. If you’ve got a 20-year lease, you’re probably going to want the title protection since finding and moving to a new space would be a nightmare. But if you’re only there for a couple of years, maybe you roll the dice. The same logic applies to improvements – if you’re spending serious money building out the space or constructing something new, you’ll want to protect that investment. If you’re moving into a place that’s already set up and not spending much on changes, the insurance might not be worth it.
You would need the cooperation of the Landlord
Getting the insurance isn’t just a matter of writing a check. Your landlord has to get involved, signing affidavits about any title issues that aren’t in the public records and providing whatever documentation your state requires. You’ll also want to record a short version of your lease (most people don’t record the whole thing to keep the details private) and get a current survey done. Skip the survey, and you’ll have a big exception in your policy for anything a survey would have caught.
Figuring out how much coverage to buy can be tricky. Some tenants base it on what they’re spending on improvements, others use a formula tied to their rent payments. Once you settle on an amount, the title company will quote you a premium that varies by state and coverage level. You’ll want to figure out if this coverage actually makes sense for your wallet. Here’s the thing – leasehold title insurance isn’t something every tenant needs. But if you’ve got a long lease and you’ve put serious money into your space, this title insurance might be worth it for the security alone.