When it comes to closing a home in Alberta, on occasion, the seller may offer a credit for the costs to the buyer to purchase a title insurance policy in lieu of the seller providing an up-to-date real property report (RPR). When considering the prospect of drafting title insurance clauses, into your agreement of purchase and sale make sure you understand exactly what you're agreeing to.
What is Title Insurance
Title insurance is available for a low premium that is paid only once at the time of the purchase. Title insurance provides coverage for losses arising from survey/RPR related matters including:
• Forced removal by a governmental authority or an affected neighbour/easement holder of all or part of the existing structures due to encroachments onto adjoining land or onto an easement; and
• The land being unmarketable, which allows another person to refuse to perform a contract to purchase, lease or make a mortgage loan due to adverse matters that would have been disclosed by an up-to-date survey/RPR.
Limitations of Title Insurance
Title insurance does not cover known defects at the time of the purchase. This would include deficiencies disclosed in an RPR or home inspection report obtained prior to closing. However, some title insurers may provide coverage for known issues subject to underwriting approval. If you wish to use title insurance to deal with known issues, the availability and extent of coverage must be confirmed with the insurer prior to offering a title insurance credit to the buyer to compensate for the known issue.
Do be cautious in drafting title insurance clauses in the purchase agreement. Avoid vague clauses such as:
• Buyer accepts the RPR as-is with title insurance
• Title insurance in lieu of RPR
- Clauses such as these do not address
- a) who pays for the title insurance; or
- b) what happens if the RPR shows a known defect which a title insurer will not cover.
At Deeded, we would be happy to help you draft title insurance clauses and would welcome the opportunity to collaborate with you on the purchase agreement to ensure the best interests of your client.1