Can I Insure My Leasehold Interest?

Aug 11, 2016

One of the questions that we repeatedly hear from our clients is whether or not they can insure their leasehold interest. We’ve put together some key points to keep in mind when considering making this move.

Leasehold Interest: The Basics

Fee simple or free hold interest is the most common form of ownership in real estate transactions. In a fee simple interest, the purchaser is given title to the property to the land and any improvements thereon.

The fee simple owner has all rights to use, possess, dispose of, lease or to pass to others upon death.

A less common type of ownership interest is leasehold. A leasehold interest is created when the fee simple owner enters into a ground lease with another person or entity. The fee simple owner is known as the Lessor or Landlord while the Tenant is the Lessee. The Lessee is given the rights to use the land and improvements as if they had fee simple title, however, the Lessee does not own the land. The right to use the land is limited based on the terms of the lease. Typically this is limitations of use, time and access.

One method of protecting a leasehold interest is to purchase a leasehold title police. This is similar to the title insurance for a fee simple ownership but has some important differences. A leasehold title insurance policy contains all the protections, exceptions or exclusions, and stipulations that are normally found in an owner’s title policy.

The main difference between an owner’s title insurance policy and a leasehold title insurance policy is the definition of loss or damage.

The following items are included in a leasehold policy under loss or damage according to the American Land Title Association:

The cost of removing, relocating, and repairing the insured’s personal property within a 25-mile radius.

Rent or use-and-occupancy payments the insured may be obligated to pay a party having paramount title to that of the landlord.

Post-eviction rent that the insured is obligated to continue to pay the landlord for the land from which the insured has been evicted.

The fair market value of the insured’s interest in any subleases.

Any damages that the insured is obligated to pay a sub lessee on account of a corresponding breach of a sublease.
Each real estate transaction is different and your situation may require a more detailed examination by counsel. If you have specific questions regarding insuring leasehold interest or title insurance in general, you can contact us at U.S. Title Solutions.