It may seem strange to those in the real estate business, but when Oakville, Ont. insurer launched a website dedicated to commercial title insurance last month January, it marked the first site of its kind for Canada.
FCT, which is by far the largest insurer of commercial titles in the country, had for quite some time seen the need for a site to explain how such insurance can reduce or eliminate the need for time-consuming title and off-title searches, thereby helping commercial deals close faster and with less potential worry amongst the parties.
“We did contemplate introducing this about three years back but we unfortunately experienced a little bit of a downturn in the commercial real estate market so timing wasn’t exactly right for us,” said Renzo Farronato , FCT’s Vice-President of Commercial Title Insurance. “We continued to experience questions from our customers and we thought we have seen an upturn over the past two years so let’s get back at it.”
FCT’s site, www.FCTcommercial.ca, is aimed at all parties in a typical commercial real estate transaction: lenders, lawyers, real estate brokers, and property owners. The site seeks to educate real estate players with a promise of product information and case studies intended to show how commercial title insurance can protect those participating in deals.
It is also hoped that www.FCTcommercial.ca will also underline the importance of commercial title insurance, which today is used in a minority of transactions in Canada. “We would love to be able to say that it is embedded in the normal practice of the closing of a commercial real estate transaction but that is far from the case,” said Farronato.
“We have grown the business quite a bit over the years and our ultimate goal is to arrive at that where it becomes automatic or it becomes second nature to try and close the deal,” he said.
FCT and the industry at large do not have specific statistics regarding how many deals are backed each year by commercial title insurance. FCT’s best estimate is that the size of the commercial real estate mortgage portfolio is approximately $110-billion and FCT underwrote roughly $24 billion in 2011. “So there is plenty of opportunity for us,” said Farronato.
For the most part, commercial title insurance is not part of the mix because real estate dealmakers and their professional advisors do not think it is necessary – if they think of it at all. “What you don’t know, you don’t really pursue. So we are trying to educate buyers and we are trying to educate the lawyer channel to present this as an option to mitigate risk for buyers as they complete the real estate transaction.“
The FCTcommercial website outlines four different real-life case studies of property claim disputes that the insurer has encountered in the past. They are:
• Encroachment. After taking possession of an apartment complex, the insured was notified that a portion of the parking lot encroached onto city land. Although the parking lot had been used by the previous owner for years without dispute, the new owners were now being forced by the city to move the lot in order to accommodate a widening of the road. The parking lot to the other side of the building at a cost of tens of thousands of dollars. FCT paid the claim.
• Third-party title interest. A church was purchased by a small-scale developer that planned to tear it down and build two high-end residential dwellings. Soon after closing, the sale was contested by a member of the church who claimed the rules of disposition were not followed and the property was sold unlawfully. Litigation ensued between the opposing parties, one of which named the insured—the developer. The insurance company successfully defended the insured’s ownership of the land, and they were eventually removed from the lawsuit entirely.
• Zoning issue. An insured party purchased a golf course with plans to develop the land into a larger golf course and resort. The municipality had confirmed that the land could be developed for this purpose. After closing, the municipality notified the insured that there was an error and the land was actually zoned as ‘open space/residential’. Applying for re-zoning was not an option, so the land could continue in its existing use but the development plans could not proceed. Because the value of the land including the estimated value with the improvements was insured, the buyer received a claim settlement for the loss in property value resulting from the zoning error.
• Utility arrears. Unbeknownst to the purchaser, prior to closing, the municipality placed a lien on title for outstanding water charges attributable to the vendor. The vendor who incurred the charges refused to pay, so the insured was held accountable for a bill in the thousands of dollars. The insurance company paid the outstanding utility bill and had the lien removed from their title.
“Quite often the lawyers would be familiar with these types of disputes,” said Farronato. “I’m not sure that they are familiar with how prevalent they could be as it relates to their specific real estate transactions.”