# Texas Commercial Real Estate Title Analysis

## Table of Contents
1. [Overview](#overview)
2. [Commercial vs. Residential Title Differences](#commercial-vs-residential-title-differences)
3. [Title Commitment Analysis (Commercial)](#title-commitment-analysis-commercial)
4. [ALTA Survey Review](#alta-survey-review)
5. [Commercial Title Insurance](#commercial-title-insurance)
6. [Entity and Authority Analysis](#entity-and-authority-analysis)
7. [Environmental Due Diligence](#environmental-due-diligence)
8. [Commercial Lease Analysis](#commercial-lease-analysis)
9. [1031 Exchange Considerations](#1031-exchange-considerations)
10. [Commercial Loan Title Requirements](#commercial-loan-title-requirements)
11. [Due Diligence Checklist](#due-diligence-checklist)
12. [Red Flags](#red-flags)

## Overview

Commercial real estate title examination in Texas requires additional depth and breadth compared to residential transactions. Commercial deals involve more complex ownership structures, larger dollar amounts, sophisticated lender requirements, environmental concerns, tenant issues, and extensive due diligence periods.

**Key differences from residential**:
- Extended title search period (often full chain from sovereignty)
- Entity authority analysis (LLCs, LPs, corporations, trusts)
- ALTA/NSPS survey required (not just plat)
- Environmental due diligence (Phase I ESA minimum)
- Tenant estoppel certificates and SNDA agreements
- UCC searches required
- Zoning verification
- Commercial endorsement packages
- Pro forma title policy negotiation

## Commercial vs. Residential Title Differences

### Title Search Scope

| Element | Residential | Commercial |
|---------|-------------|------------|
| **Search period** | Typically 20-40 years | Often full chain from sovereignty or patent |
| **Judgment search** | Current owner + prior owners | All parties in chain + related entities |
| **Tax search** | Current year + prior years | All taxing authorities + special districts |
| **UCC search** | Rarely required | Always required (fixture filings) |
| **Bankruptcy search** | Standard | Extended to all entities and principals |
| **Environmental** | Not typically | Phase I ESA minimum; Phase II if warranted |
| **Survey** | Plat or existing survey | Current ALTA/NSPS survey required |
| **Zoning** | Rarely verified | Zoning report or letter required |

### Policy and Endorsement Differences

| Element | Residential | Commercial |
|---------|-------------|------------|
| **Owner's policy** | T-1R (simplified) | T-1 (standard) |
| **Lender's policy** | T-7 (short form) | T-2 (full form) |
| **Survey endorsement** | T-19 (standard) | T-19 with Table A items |
| **Access** | Usually assumed | T-23 or T-23.1 required |
| **Non-imputation** | Rarely needed | T-15 or T-16 common |
| **Arbitration waiver** | T-20 (owner) / T-30 (lender) | Both required |
| **First loss** | N/A | T-44 (if applicable) |
| **Zoning** | N/A | Zoning endorsement (via T-36/ALTA) |

## Title Commitment Analysis (Commercial)

### Schedule A Review

**Six critical items to verify**:

1. **Effective date and time**: Gap between effective date and closing date must be covered
2. **Proposed policy amounts**: Owner's = purchase price; Lender's = loan amount
3. **Proposed insured**: Exact legal name of buyer entity and lender
4. **Estate or interest**: Fee simple, leasehold, or other
5. **Legal description**: Must match survey, deed, and contract precisely
6. **Current vesting**: Verify seller is current record owner; match to contract

### Schedule B-1 Requirements (Commercial-Specific)

Common commercial requirements beyond residential:

- **Entity authority documentation**: Articles of organization, certificates of good standing, resolutions, operating agreement excerpts
- **UCC-3 termination statements**: For fixture filings being released
- **Tenant estoppel certificates**: For properties with commercial tenants
- **SNDA agreements**: Subordination, non-disturbance, and attornment
- **Environmental indemnity**: May be required by underwriter
- **Zoning compliance letter**: From municipality
- **Survey certification**: ALTA/NSPS survey certified to all parties
- **Release of existing liens**: All lienholders, including UCC fixture filings

### Schedule B-2 Exceptions (Commercial Analysis)

**Standard exceptions and how to address**:

| Exception | Residential Approach | Commercial Approach |
|-----------|---------------------|---------------------|
| **Restrictive covenants** | Accept or schedule | Full review; identify violations; T-34 endorsement |
| **Taxes/assessments** | Standard language | Verify ALL taxing authorities including PIDs, TIRZs, MUDs |
| **Mechanic's liens** | T-47 affidavit | T-47 + contractor sworn statements + retainage holdback |
| **Survey matters** | T-19 deletion | T-19 with full Table A items + ALTA survey |
| **Parties in possession** | Standard deletion | Tenant audit; estoppel certificates; lease review |

**Special exceptions unique to commercial**:

- **Mineral reservations**: Review for surface use impact on development
- **Pipeline/utility easements**: Map on site plan; assess building envelope impact
- **Restrictive covenants**: Use restrictions, building standards, architectural review
- **Development agreements**: Government incentive agreements, tax abatements
- **Reciprocal easement agreements (REAs)**: Common in retail/shopping center
- **CC&Rs for commercial parks**: Operating covenants, maintenance obligations
- **Ground lease terms**: If leasehold interest

## ALTA Survey Review

### 2021 ALTA/NSPS Minimum Standard Detail Requirements

The ALTA survey is the standard for commercial transactions. It provides detailed property information beyond a simple boundary survey.

### Mandatory Survey Elements

Every ALTA survey must show:
- Boundary lines with bearings and distances
- Gross land area (square footage and acreage)
- All recorded easements identified in title commitment
- All improvements (buildings, parking, fences, walls)
- Evidence of utilities (above and below ground)
- Access points and curb cuts
- Rights-of-way adjoining the property
- Observable evidence of encroachments
- Flood zone designation
- Basis of bearings and datum

### Table A Optional Items (Common for Commercial)

| Item | Description | When Required |
|------|-------------|---------------|
| **1** | Monuments placed or found | Standard practice |
| **2** | Address | Always requested |
| **3** | Flood zone per FEMA | Standard for lenders |
| **4** | Gross land area by zoning | Zoning compliance |
| **5** | Vertical relief/contours | Development sites |
| **6a** | Setback/building lines (recorded) | All commercial |
| **6b** | Setback/building lines (from zoning) | All commercial |
| **7a-c** | Exterior dimensions of buildings | All commercial |
| **8** | Building area | Square footage verification |
| **9** | Parking spaces/striping | Retail, office, multifamily |
| **10a-c** | Utilities (observed/located) | Development sites |
| **11** | Location of utilities serving site | All commercial |
| **13** | Names of adjoining owners | Due diligence |
| **16** | Evidence of cemetery/grave sites | Raw land |
| **17** | Evidence of RR tracks/sidings | Industrial |
| **18** | Evidence of underground vaults | Urban properties |
| **19** | Plottable offsite easements | Access/utility |
| **20** | Professional certification | All commercial |

### Survey Review Checklist

1. **Boundary verification**: Matches legal description in commitment?
2. **Easement plotting**: All Schedule B easements shown on survey?
3. **Encroachment analysis**: Any improvements cross boundaries or easements?
4. **Setback compliance**: Buildings within required setbacks?
5. **Access confirmation**: Legal and physical access to public road?
6. **Flood zone**: FEMA flood zone designation; any structures in flood zone?
7. **Utility verification**: All utilities serving the property identified?
8. **Gap/gore analysis**: Any gaps between property and adjoining parcels?
9. **Right-of-way**: Adequate right-of-way for access?
10. **Certification**: Survey certified to buyer, lender, and title company?

## Commercial Title Insurance

### Title Report Components

**Schedule A**: Identifies property, owner, proposed insured, policy amounts
**Schedule B-1**: Requirements to be met before policy issuance
**Schedule B-2**: Exceptions from coverage that will appear in policy

### Covered Risks (Commercial Owner's Policy T-1)

Four basic coverages:
1. Title vested other than as stated in policy
2. Defect, lien, or encumbrance on title
3. Unmarketable title
4. Lack of legal access to and from the land

### Standard Exclusions

1. Laws, regulations, ordinances (governmental—including zoning)
2. Eminent domain (unless notice recorded)
3. Defects known to insured but not disclosed to company
4. Defects arising after Policy Date that insured agreed to assume
5. Creditor's rights
6. Special assessments not yet due

### Key Commercial Endorsements

| Endorsement | Purpose | When Used |
|-------------|---------|-----------|
| **T-19** | Survey/comprehensive | Every commercial deal |
| **T-19.2** | Minerals/surface damage | Mineral areas |
| **T-23/T-23.1** | Access/entry | Every commercial deal |
| **T-15/T-16** | Non-imputation | Entity purchases |
| **T-30** | Arbitration waiver (lender) | Every lender deal |
| **T-20** | Arbitration waiver (owner) | Standard |
| **T-34** | Identified restrictions | When restrictions affect use |
| **T-43** | Commercial mortgage modification | Anticipated loan mods |
| **T-44** | First loss | Large deals with coinsurance |
| **T-36** | ALTA endorsements | National lender requirements |

### Pro Forma Policy

In commercial transactions, buyer/lender often request a **pro forma policy** before closing:
- Draft of how the final policy will read
- Shows exact exceptions and endorsement language
- Allows negotiation of coverage before closing
- Identifies any title issues requiring resolution

### Coinsurance and Reinsurance

**For large commercial deals** (typically $25M+):
- Single title insurer may not retain full risk
- **Coinsurance**: Multiple insurers each issue a policy for their share
- **Reinsurance**: Primary insurer purchases reinsurance (transparent to insured)
- **Tie-in endorsement**: Coordinates coverage among multiple policies
- Texas promulgated rates apply regardless of coinsurance structure

### The Gap

Period between title commitment effective date and recording of closing documents:
- Title company assumes gap risk
- Commercial deals: gap may be several days to weeks
- Bring-down search recommended immediately before closing
- Gap endorsement available in some situations

## Entity and Authority Analysis

### Common Commercial Ownership Structures

| Entity | Key Documents | Authority Verification |
|--------|---------------|----------------------|
| **LLC** | Certificate of Formation, Operating Agreement | Manager/member resolution; verify good standing |
| **LP** | Certificate of Formation, Partnership Agreement | General partner authority; verify good standing |
| **Corporation** | Articles of Incorporation, Bylaws | Board resolution; officer certificate |
| **Trust** | Trust Agreement (relevant excerpts) | Trustee authority; trust existence |
| **Series LLC** | Same as LLC + series designation | Verify specific series authority |
| **Joint Venture** | JV Agreement | Authority provisions; partner approvals |
| **REIT** | Corporate docs + trust provisions | Board/trustee authority |

### Authority Verification Steps

1. **Certificate of good standing**: Texas Secretary of State (or state of formation + TX registration)
2. **Entity formation documents**: Confirm entity name matches exactly
3. **Authority to transact**: Resolution or consent authorizing the specific transaction
4. **Signatory authority**: Verify person signing has authority per governing documents
5. **Foreign entity qualification**: If formed outside Texas, registered to do business in Texas?
6. **No dissolution or forfeiture**: Check SOS records for any adverse filings

### Special Authority Issues

**Multi-tier entities** (LLC owned by LP owned by Trust):
- Must verify authority at each level
- Each entity in chain must be in good standing
- Signing authority must trace from top to bottom

**Bankruptcy of entity or principal**:
- Automatic stay may prevent transaction
- Court authorization may be required
- Trustee may need to consent

## Environmental Due Diligence

### Phase I Environmental Site Assessment (ESA)

**Standard**: ASTM E1527-21

**Required for**:
- Virtually all commercial transactions
- Lender requirement for commercial loans
- Establishes "innocent purchaser" defense under CERCLA
- Valid for 180 days from completion (with updates up to 1 year)

**Key findings affecting title**:
- Recognized Environmental Conditions (RECs)
- Controlled RECs (cRECs) — remediated but with institutional controls
- Historical RECs (hRECs) — past contamination, no current concern
- De minimis conditions

### Phase II ESA

**When triggered**: Phase I identifies potential contamination

**Involves**: Soil and groundwater sampling, laboratory analysis

**Title implications**:
- Contamination may constitute unmarketable title
- Environmental liens may be filed by EPA or TCEQ
- Remediation obligations may run with land
- Environmental insurance may be recommended

### Environmental Liens and Restrictions

**Federal environmental liens** (CERCLA):
- EPA superlien for cleanup costs
- Attaches to all property of responsible party
- May be superior to prior recorded liens

**State environmental liens** (TCEQ):
- Texas Commission on Environmental Quality
- Liens for state-funded cleanup costs
- Voluntary cleanup program (VCP) — may result in institutional controls recorded against property

**Institutional controls**:
- Deed restrictions limiting property use
- Activity and use limitations (AULs)
- Must be identified in title commitment
- May significantly limit property development

### Environmental Title Considerations

1. **Search for environmental liens**: County records + EPA/TCEQ databases
2. **Identify deed restrictions**: Environmental use limitations recorded against property
3. **Review Phase I**: Any RECs affecting title or use?
4. **Verify TCEQ status**: Any open enforcement actions?
5. **Check EPA databases**: CERCLIS, RCRA, NPL
6. **Review neighboring properties**: Off-site contamination migrating to subject?

## Commercial Lease Analysis

### Title Impact of Leases

**Leases create interests in real property** that must be analyzed:
- Recorded lease or memorandum = constructive notice
- Unrecorded lease + tenant in possession = inquiry notice
- Long-term lease (>1 year in Texas) should be recorded

### Lease Review for Title Purposes

**Key provisions affecting title**:

| Provision | Title Impact |
|-----------|-------------|
| **Term** | Duration of encumbrance on title |
| **Options to renew/extend** | Future encumbrance period |
| **Options to purchase** | Potential claim on title |
| **Right of first refusal** | May delay or prevent sale |
| **Assignment/subletting** | Who actually occupies? |
| **Subordination** | Lease priority relative to lender |
| **Attornment** | Tenant agrees to recognize new owner |
| **Non-disturbance** | Lender agrees to honor lease after foreclosure |
| **Estoppel** | Tenant certifies lease terms and status |

### Tenant Estoppel Certificates

**Purpose**: Tenant certifies current lease status to buyer/lender

**Required information**:
- Lease is in full force and effect
- No defaults by landlord or tenant
- Current rental amount and payment status
- Security deposit amount
- Any prepaid rent
- Remaining term and renewal options
- No options to purchase or rights of first refusal (or disclose if any)
- No claims against landlord

**Title significance**: Estoppel binds tenant to stated facts; protects buyer and lender from undisclosed claims

### SNDA Agreements (Subordination, Non-Disturbance, Attornment)

**Three-party agreement** between lender, landlord, and tenant:

- **Subordination**: Tenant agrees lease is subordinate to lender's lien
- **Non-disturbance**: Lender agrees not to disturb tenant's possession if tenant performs
- **Attornment**: Tenant agrees to recognize lender (or purchaser at foreclosure) as landlord

**Title requirement**: Most commercial lenders require SNDA from all major tenants

## 1031 Exchange Considerations

### Standard (Forward) 1031 Exchange

**IRC § 1031**: Allows deferral of capital gains tax by exchanging like-kind real property

**Title implications**:
- Qualified Intermediary (QI) may hold title temporarily
- Exchange agreement must be in place before closing relinquished property
- 45-day identification period; 180-day exchange period
- Deed may go directly from seller to buyer (or through QI)
- Title commitment must identify correct parties

### Reverse 1031 Exchange

**Revenue Procedure 2000-37**: Safe harbor for reverse exchanges

**Structure**: Exchange Accommodation Titleholder (EAT/AT) takes title to replacement property before taxpayer sells relinquished property

**Two approaches**:
1. **Exchange last**: AT acquires replacement property; taxpayer later sells relinquished → exchanges into replacement
2. **Exchange first**: AT acquires relinquished property; taxpayer acquires replacement → AT conveys relinquished to buyer

**Title considerations**:
- AT (usually an LLC) will appear in chain of title
- Qualified Exchange Accommodation Agreement (QEAA) governs
- 180-day parking period maximum
- AT must be treated as owner for tax purposes
- Title insurance must cover AT's interest during parking period
- Deed from AT to taxpayer (or from AT to buyer) recorded at completion

**Key requirements**:
- AT must hold "benefits and burdens" of ownership
- Financing arranged through AT
- All costs/proceeds flow through AT
- AT's ownership must be meaningful (not mere nominee)

### Installment Sales

**Alternative to 1031 when exchange not feasible**:
- Seller carries note (owner financing)
- Gain recognized proportionally as payments received
- Deed of trust secures seller's note
- Title must reflect seller's lien
- Wraparound mortgage possible (seller's existing loan stays in place)

**Gross profit ratio calculation**:
1. Determine gross profit (selling price minus adjusted basis)
2. Calculate ratio: gross profit ÷ contract price
3. Apply ratio to each payment to determine taxable portion

## Commercial Loan Title Requirements

### Standard Commercial Lender Requirements

1. **T-2 Mortgagee Policy**: Full-form lender policy (not T-7)
2. **ALTA/NSPS survey**: Current, certified to lender, with Table A items
3. **UCC search**: All filing offices; fixture filing search
4. **Entity search**: Secretary of State + county records
5. **Environmental**: Phase I ESA (and Phase II if warranted)
6. **Zoning**: Zoning report or compliance letter
7. **Insurance**: Evidence of property insurance naming lender
8. **Estoppel certificates**: From all tenants (or major tenants)
9. **SNDA agreements**: From all major tenants
10. **Title endorsements**: T-19, T-23, T-30, T-43 (minimum)

### Pro Forma Policy Negotiation

Commercial lenders typically require pro forma before closing:
- Review and negotiate Schedule B exceptions
- Request deletion of standard exceptions (with documentation)
- Negotiate affirmative insurance for known issues
- Add endorsements per lender requirements
- Confirm gap coverage approach

### Loan Modification Considerations

**T-43 endorsement**: For commercial loan modifications
- Updates policy to reflect modified loan terms
- Confirms lien priority after modification
- May require updated title search/bring-down

## Due Diligence Checklist

### Title Due Diligence (Commercial)

- [ ] **Full chain of title review**: From sovereignty/patent or per search period
- [ ] **Entity authority**: Good standing, authority documents, signing authority at all entity levels
- [ ] **UCC search**: Fixture filings, all debtor names, all filing offices
- [ ] **Judgment search**: All parties, all related entities, all counties
- [ ] **Bankruptcy search**: Federal court records for all parties
- [ ] **Federal tax lien search**: All parties
- [ ] **State tax lien search**: Comptroller's office + county records
- [ ] **Environmental lien search**: EPA + TCEQ databases + county records
- [ ] **Lis pendens search**: All counties where property located
- [ ] **Franchise tax status**: All entities in chain must be in good standing

### Survey Due Diligence

- [ ] **Current ALTA/NSPS survey**: With required Table A items
- [ ] **Survey-commitment comparison**: All Schedule B easements shown on survey?
- [ ] **Encroachment analysis**: Building, fence, or improvement encroachments?
- [ ] **Easement impact**: Easements affect building envelope or parking?
- [ ] **Access verification**: Legal and physical access confirmed?
- [ ] **Flood zone determination**: FEMA flood map review
- [ ] **Setback compliance**: All structures within required setbacks?
- [ ] **Zoning overlay**: Survey shows zoning boundaries if applicable?

### Environmental Due Diligence

- [ ] **Phase I ESA**: Current (within 180 days; updateable to 1 year)
- [ ] **Phase II ESA**: If Phase I identifies RECs requiring investigation
- [ ] **Environmental lien search**: Federal and state databases
- [ ] **Regulatory database search**: CERCLIS, RCRA, NPL, state equivalent
- [ ] **Deed restriction review**: Environmental use limitations?
- [ ] **TCEQ VCP status**: Voluntary cleanup program involvement?
- [ ] **Neighboring property review**: Off-site contamination risk?

### Lease Due Diligence

- [ ] **Rent roll review**: All tenants, terms, rental rates, expirations
- [ ] **Lease abstracts**: Key terms for each lease
- [ ] **Estoppel certificates**: Obtained from all (or major) tenants
- [ ] **SNDA agreements**: Executed by lender and tenants
- [ ] **Options**: Purchase options, rights of first refusal, expansion rights
- [ ] **Operating expense reconciliation**: CAM, tax, insurance pass-throughs
- [ ] **Guaranty review**: Personal or entity guarantees of lease obligations
- [ ] **Assignment/sublease**: Any assignments or subleases?
- [ ] **Lease amendments**: All amendments accounted for?

### Closing Due Diligence

- [ ] **Pro forma title policy**: Reviewed and approved by buyer and lender
- [ ] **Gap coverage**: Bring-down search before closing
- [ ] **Recording verification**: All documents properly recorded
- [ ] **Post-closing requirements**: Follow up on pending items (e.g., estoppels, SNDA)
- [ ] **Final policy issuance**: Confirm policies issued within reasonable time after closing

## Red Flags

1. **Entity not in good standing**: Cannot convey until reinstated
2. **Signing authority unclear**: Multi-tier entity structures require tracing authority
3. **UCC fixture filings unreleased**: May affect lender priority
4. **Environmental RECs in Phase I**: May require Phase II or remediation
5. **Easements crossing building envelope**: May prevent development or require relocation
6. **Tenant with purchase option**: May have superior right to purchase
7. **Zoning non-conforming use**: Existing use may be grandfathered but not expandable
8. **Survey-commitment discrepancies**: Easements in commitment not shown on survey (or vice versa)
9. **Gap between search date and closing**: Title exposure during gap period
10. **Coinsurance needed**: Policy amount exceeds single underwriter retention
11. **Ground lease expiration**: Leasehold interest may be approaching end of term
12. **Special assessment districts**: PIDs, TIRZs, MUDs may have significant assessment obligations
13. **Reciprocal easement agreements**: Complex shared obligations in multi-tenant or retail
14. **Missing tenant estoppels**: Cannot verify lease terms and status
15. **1031 exchange timing**: Miss identification or exchange deadline = failed exchange