An available but often overlooked title insurance coverage is protection for tenants and their lenders. This coverage is available through special endorsements to both the Owner Policy of Title Insurance and the Mortgagee Policy of Title Insurance. See Texas Title Insurance Form T-4 located at the end of this Chapter.
The title insurance applies to the named insured - the owner - not to his tenants. In the case of a covered title defect serious enough to cause the borrower to be evicted from all or part of the leased premises, the only remedies would be a lawsuit under the lease or business interruption insurance. A lender to a tenant for the tenant’s improvements would have a lien on property to which title may have been lost.
The leasehold policy is a standard owner or lender policy to which an endorsement covering items of loss not covered by the standard policy is added. Subject to policy provisions, losses covered up to the policy limit may include, among others specified in the policy as endorsed, the reasonable cost of removing and relocating personal property that the borrower has the right to remove under the terms of the lease, as follows:
•personal property means inventory and fixtures,
•the cost to move the personal property an initial 100 miles,
•the cost of repairing any property damaged in the move,
•rent or damages payable to the person having title superior to the landlord,
•rent which the tenant is liable to pay to the landlord after the eviction,
•the fair market value of any sublease,
•Damages to the insured tenant is obligated to pay a sublessee.
The value of a leasehold interest is the difference between the remaining rent to be paid and the present worth of the excess of the fair market rental value, without regard for the title, defect, for the remainder of the lease term, and all valid renewal options as well as the value of any tenant improvements existing on the date of the eviction. In other words, if the fair market value of the lease term is less than or equal to the remainder of the lease term of the rent and other consideration period, there are no damages recoverable for the value of the leasehold. The insured claimant may value the leasehold estate and the tenant improvement either as a whole or separately.