What Is a Gap Indemnity Agreement

With regard to compensation for deviations, it is essential that the person entitled to compensation is financially capable. Often, the owner of commercial real estate is a single unit of assets whose only asset is the underlying property. Once this property has passed into the hands of the buyer, anyone looking for recourse against the seller (now without assets) can only find the empty pockets. The best practice is to ask a seller`s parent company or other financially viable party to clear the gap. “What is a gap compensation agreement? Compensation claimed by a title insurance company from a borrower or seller in order to minimize its risk between the completion of a real estate transaction and the actual registration of the instrument. “So who bears the risk? In some countries, it is common for securities companies to assume the risk. This risk can be mitigated in part by updating the title immediately before closing – thereby reducing the discrepancy – and by forwarding documents overnight to a local agent who records at the reception. In addition, securities companies typically attempt to spread the risk by requiring spread compensation, with the seller compensating the securities company for matters that arise between the date of the bond and registration. This memorandum refers to some of the changes we are seeing in the title insurance industry as a result of COVID-19.

While issues and impacts may vary slightly from county to county and title company to another, this memorandum addresses the following three (3) recurring concerns: Specifically, Jen represents retailers, developers and institutions in all aspects of commercial real estate transactions, including advice on environmental regulations and due diligence. As a partner in the Renewable Energy Practice Group, Jen advises industrial companies on the introduction of solar leasing in order to achieve their business goals. Can someone explain the CAP compensation agreement and how you explain it to the seller? What exactly are they paying the securities company for? Despite their long career in commercial real estate transactions, gap reduction has been and will likely continue to be used more frequently. Closing gaps makes it easy to negotiate real estate with parties without them having to leave their office (and in a COVID-19 world, their own home). With the COVID-19 pandemic and the shift to working from home, it`s important for commercial real estate lawyers and their clients to understand the filling of gaps – its virtues as well as the problems it can bring. Our assessment of the above issues and related recommendations can be found below. “The Company reserves the right, before and after closing, to make exceptions and requirements for the issuance of one or more securities policies based on the details of the transaction, the review of closing documents and changes to document and title search capabilities due to the consequences of the COVID-19 pandemic and the closure of commercial and government offices.” Jennifer L. Ioli is a commercial real estate and environmental lawyer with experience in acquisitions, development, leasing and financing. This “gap” can occur for a number of reasons. For example, several states have a record-keeping deadline – that is, even if documents are submitted for registration on closing day, they cannot be processed for several weeks. The impact of the COVID-19 pandemic and government orders restricting the operation of deed registries and other service providers have increased registration delays since the beginning of 2020. The risk in any spread scenario is that between the time of closing and the registration of closing documents, a question or intermediate security, such as a tax lien or judgment against the seller, may be registered, which could prevent the buyer from receiving the quality of the traded security.

The parties will then contact their title insurer to obtain coverage. Spread closures are transactions in which, after the delivery of documents and funds, there is a time interval before documents are seized. As with traditional transactions, a securities policy is issued, which usually insures the security from the date of the last security commitment. Title insurance ensures the “gap” between the final table and the entry of documents. Take these steps, understand the process, and engage quality title insurance companies to ensure that gap reduction runs smoothly and that the parties get the benefits of their market. Typically, these shortcomings occur when the buyer is in one state, the seller is in another, and the property is in another. In these scenarios, closing is usually carried out through the title company designated by the buyer in the state where the buyer is located. The title company is responsible for supervising all documents, receiving and disbursing funds and recording closing documents.

Also from Google: “Indemnification is a comprehensive form of insurance compensation for damage or loss. In the legal sense, it can also refer to an exclusion of liability for damages. This blog post was written by Brian Memory and Caleb Rush, attorneys in the office of Spencer Fane LLP Plano, TX. For more information, see spencerfane.com. It is also important that the buyer`s lawyer carefully prepares his final letter of instruction to the securities company. Among other things, the final letter of direction in a gap reduction should require the securities company to issue the policy in the form of the marked or pro forma bond “without additional exceptions.” This ensures that the securities company is obliged to issue the same directive for which the buyer has traded, regardless of the provisional issues. Please note that the impact of COVID-19 on title insurance matters is changing rapidly. The recommendations contained in this document are of a general nature and may need to be amended from one agreement to another as the impact of COVID-19 on title insurance continues to evolve. Depending on the jurisdiction, electronic registration may be an option.