As greenfield development continues to grow, the title industry is facing increasing demand resulting in higher price tags and longer turnaround time for early stage title work. While it may have been common practice to wait until nearly all site control agreements were complete and a close-to-final site plan was in hand before requesting title commitments, this approach is no longer ideal.
Title insurance provides the project company, and its lenders and investors, protection against title defects such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are specified in the insurance policy. The first step in obtaining this protection is the issuance of a commitment for title insurance where the title company agrees that it will insure a piece of real property if certain requirements are met. The title company will also provide a list of matters that are excluded from coverage, such as prior-in-time mortgages, utility easements, oil and gas leases or other encumbrances. Quite a bit of work is required on the part of the project company to satisfy the requirements and reach agreement on acceptable exclusions from coverage. Because of the amount of time, expense and work involved, the earlier the project company engages the title company and obtains title commitments, the more likely it will be that the project will stay on schedule, on budget and successfully close.
In addition, until a title commitment is received, the project company lacks essential real estate knowledge about the property with the only information the project company has about the property coming from what the landowner may (or may not) disclose, or what was revealed in preliminary environmental testing. For example, without the title commitment, , the project company has no knowledge whether there are any third parties with rights over the property (whether surface or subsurface) that could interfere with the planned development and site plan. A developer could be planning to blanket an area with panels but then discovers from the title commitment that an oil and gas developer has superior rights to the same swath of ground and installation of panels would not be permitted without permission—which usually comes at a price. As this impacts both the site plan and budget, the sooner these constraints are identified the better.
There is of course a balancing act here because the fees involved in issuing title commitments can be high in some states, so it is not efficient or budget friendly to request commitments too early in the process and before any real site plan is identified; however, because of the increased demand on title companies, we suggest engaging the title company as soon as a preliminary site plan is identified, even if not all site control agreements are final. Even in states where the cost of title work is high, the cost to obtain information for parcels that do not end up being part of the project can be less than the costs associated with project delay.
Contact Mara Pollets or another member of Husch Blackwell’s renewable energy team with any questions you have about obtaining title commitments or any other renewable project development questions you may have.