New York’s commercial property market moves quickly, involves multimillion‐dollar stakes and often covers parcels with ownership histories stretching back a century or more. While state law does not compel buyers to purchase title insurance, skipping this coverage can expose investors to surprise liens, boundary disputes or prior fraud that a routine title search might miss.
What a policy actually covers
Title insurance shifts the financial risk of hidden defects, like undischarged mortgages, recording errors, forged deeds, etc., from the purchaser to the insurer. A one-time premium at closing secures an indemnity that lasts as long as the owner (or lender) holds an interest in the property.
Why lenders typically demand it
Commercial financing institutions generally insist on a lender’s title policy as a prerequisite to disbursing loan proceeds. Their priority is simple: protect the mortgage’s first-position status. Buyers who also obtain an owner’s policy gain identical protection for their equity. And, simultaneous issue rates can reduce the combined premium when both policies are purchased together.
Calculating the cost of going without
Commercial parcels often carry layered chains of title, complex easements and prior ownership transfers among dissolved entities. If, post-closing, a prior lienholder emerges or a survey reveals an encroachment, an uninsured owner pays to litigate or settle the dispute and may even lose the property outright.
When title insurance proves most valuable
Title insurance can be especially valuable in assemblages and redevelopments where multiple lots merge. I can also be valuable with distressed-asset purchases from foreclosure or bankruptcy auctions. Historic buildings with decades of handwritten deeds and potential recording gaps can pose potential problems where title insurance can be valuable. And, deals with ground leases or air-rights transfers that depend on rock-solid boundary descriptions also scream for title insurance.
Takeaway for investors
Although optional, an owner’s title policy is analogous to structural steel in a skyscraper: invisible once the deal closes, yet critical when unforeseen pressure arrives. The premium, typically a fraction of a single month’s rent in Manhattan office space, buys certainty that past paperwork errors or hidden interests will not jeopardize tomorrow’s NOI. For most commercial buyers, that trade-off makes practical and economic sense in New York’s high-stakes real estate arena.