Commercial Deed Restrictions, To Be or Not to Be

Understanding Deed Restrictions & Their Impact on Deals

There is nothing like asking someone in the title industry to write something about the business that would be “interesting to readers.” We title folks think it is all interesting, we always say with a smile. I did not want to guess what would be informative, timely and interesting to readers, so I went out and asked a few.

We asked and you answered. The responses were varied but shared a common theme related to deed restrictions, including questions on how restrictions impact perception of value, use, focused growth and how restrictions have impacted prior deals we have closed.

The Art of Title Research

One responder also asked “How do you do it? The research, that is?” Simple, when you graduate from title school the instructor gives you a magic wand! Title personnel receive training on what to ask and where to direct the wand and then, like magic, the answers appear on the page. Okay, don’t grow impatient with this whimsical answer because we like to have a little fun, but we also like to leave a bit of mystery.

On a serious note, it takes careful application of both experience and intuition by a title examiner to follow the chain of title back the required number of years as well as attention to detail when reading legal descriptions and other records to accurately gather enough facts to discover restrictions that could impact title and the transaction as a whole.  A knowledgeable title examiner can also make decisions as to what items found are still applicable and relevant.

Tales from the Trenches

We have all heard the stories of how an encumbered title has caused a ripple effect of grand proportions. For example, the now-owner that must obtain approvals for current exterior modifications from a previous owner years back in the title chain, there might be a prohibition found as to a specific use or the requirement of a particular use, or, more commonly, a set-back or minimum frontage requirements that just don’t align with “today’s standards,” and the list goes on. If you have been in commercial real estate for long, you are probably familiar with these issues and have your own list of examples that fall into one of these types of restrictions: use, architectural and design, maintenance and appearance, environmental and conservation, parking and vehicle. The good news is, you don’t have to discover and navigate the deed restrictions alone, there are resources to help including a commercial title company.

What is a Deed Restriction

A deed restriction is a legal provision that is placed on a property in the deed to limit or regulate certain aspects of its use and development. It is created by either the original property owner or a governing authority.

In many cases, deed restrictions are put in place to protect the value of the property or to safeguard the interests of other businesses in the area. Once the restriction is within the deed, it remains part of the property and can be very difficult to remove. Common restrictions include the following:

• Prohibiting competing businesses from moving onto the property
• Prohibiting businesses that may attract certain clientele
• Limiting the size or design of what is built on the property
• Prohibiting certain types of commercial buildings, such as restaurants or residential units, on a particular property

Navigating the Deed Minefield

It can be helpful to review a deed for language on a possible variance, the sunset clause, non-conforming use, easements and/or waivers.

• A variance is a legal exception or permission to deviate from specific deed restrictions due to unique circumstances or hardship.
• The sunset clause is a provision in a deed restriction that sets an expiration date or condition upon which the restriction will no longer be enforceable.
• Non-conforming use language refers to a use or structure that existed before the implementation of the deed restriction and is allowed to continue despite not conforming to the current restrictions.
• An easement is a provision which grants to a person or entity the ability to use a portion of another person’s property for a specific purpose, often specified in the deed restrictions.
• Waiver language is a voluntary relinquishment or suspension of a deed restriction by the party who is entitled to enforce it, typically granted under certain circumstances or conditions.

The Power Used Wisely

Deed restrictions play a vital role in shaping the use, development, and overall character of real property. They are designed to help maintain property values, create cohesive neighborhoods, and protect the interests of property owners. However, over time and as a result of changes to the surrounding land, they can also cause controversy, inconsistency and cost time and resources to navigate, adhere to and, in some cases, amend.

Property owners and those thinking of purchasing new real estate can make informed decisions and navigate the ever-changing landscape by understanding the types and implications of deed restrictions and by finding the right title company to help.

Allies in the Field

The right title company will perform a title search to identify the status of ownership and find liens and other matters affecting title by collecting documents statutorily required to be recorded in the public records.  Once the search is complete, the title company will compile its findings in a document called the title commitment and can then determine the “insurability” of the title.  The title commitment will also list exceptions from coverage and requirements to insure. Working with a sophisticated, knowledgeable title company that is well versed in commercial real estate will make a difference in what can and will be discovered during the search.  The best title companies provide solutions on how to clear title exceptions and ultimately can recommend the best title insurance coverage for your investment.

The Role of Commercial Title Insurance

Even the most thorough search will be limited to what is of record. There are items that can affect title called “undiscovered risks,” which include, but are not limited to, matters and title issues resulting from filing errors, forgeries, and undisclosed heirs.

The commercial title insurance policy is a type of indemnity insurance that protects your commercial investment from financial loss due to problems with the title, ownership and usage of the land. Title insurance can protect your investment from costly claims.

The Journey of Deed Discovery

We also recommend seeking guidance from a real estate attorney or other real estate experts who can provide valuable insights and ensure compliance with deed restrictions, ultimately safeguarding property rights and enhancing the overall quality of the community in which the property is located.

The first step in navigating deed restrictions and their potential impact on a real estate transaction is a thorough discovery process. Once the discovery is complete, it becomes pivotal to be supported by experts that can help provide quick and sound solutions. Although these solutions vary by transaction, the right support can be invaluable.

Full article here, https://issuu.com/mrej/docs/propertiesweb-nov23/55?fr=sNjQwYTY3NTg1NzY