What you should know about ALTA 13-06 Leasehold Owner’s Policy Endorsement

We have carefully evaluated the ALTA 13-06 Leasehold Owner’s Policy Endorsement on our work on several recent transactions. The endorsement covers a broad range of leases, however, in its current form the endorsement does not always protect the true value of the leasehold interest. For example, if a property to be insured is particularly valuable to the lessee because of the property’s location or address, a company should strongly consider revisions to the Endorsement to address the value of title to the property in particular. In this context, consider a property located in a generic retail location in any city in the United States. Although title failure at the particular location would be covered, the Endorsement conceptually would value that property at what it may cost to relocate the lease to a similar generic retail location in the same city, perhaps several streets or several miles away. Contrast this failure of title with a failure of title on Rodeo Drive in Beverly Hills, or on Fifth Avenue in New York. One cannot say that a property on Rodeo Drive is equivalent to a property on Wilshire Boulevard in Los Angeles, even if the two are mere blocks away. Accordingly, companies should carefully evaluate Section 2 and Section 3 of the Endorsement to ensure that the language adequately addresses the loss a company would face in a title failure. Summarizing, the Endorsement, although drafted to be broad, is not a one-size-fits-all endorsement. Companies must carefully consider the business plan and value of title to a particular property in question before finalizing the Endorsement. Tailoring the Endorsement to the transaction at hand may best address a company’s specific business and legal needs.