What Is Title, Encumbrances, and Clear Title?
Title is legal ownership. When you purchase commercial real estate, you receive a deed that transfers title from the seller to you.
Title is legal ownership. When you purchase commercial real estate, you receive a deed that transfers title from the seller to you. But title can come with strings attached — encumbrances — and identifying them before closing is critical.
Common encumbrances include:
- Liens: claims on the property by creditors (construction liens, tax liens, judgment liens). A contractor who wasn’t paid can file a mechanics’ lien against the property. Until that lien is released, the title is clouded.
- Easements: rights granted to a third party to use a portion of the property. A utility easement allows the power company to access a strip along your property. A shared driveway easement may limit what you can build.
- Deed restrictions/covenants: recorded limitations on use that run with the land. A prior owner may have recorded a covenant prohibiting certain tenant types or building uses.
- Encroachments: when a structure (a fence, building overhang, parking lot) physically crosses a property line. Encroachments can cloud title and create future disputes.
A title search examines the chain of ownership and recorded documents against the property. A title insurance policy protects the buyer (and lender) against undiscovered title defects. Lenders always require a lender’s title policy. Buyers should also purchase an owner’s title policy.
Clear title means the title search revealed no unresolved encumbrances, liens, or defects. You can’t get a conventional loan — and shouldn’t close any deal — without it. (Title is a legal matter; always have a real estate attorney and a title company review the search before you close.)
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Title, Encumbrances, and Clear Title is one of the core numbers in commercial real estate. The Language of CRE course teaches it alongside every other metric you need to read a deal, with worked examples and practice questions.
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Common questions
What is Title, Encumbrances, and Clear Title?
Title is legal ownership. When you purchase commercial real estate, you receive a deed that transfers title from the seller to you.
Why does Title, Encumbrances, and Clear Title matter in a commercial real estate deal?
But title can come with strings attached — encumbrances — and identifying them before closing is critical. Common encumbrances include: Liens: claims on the property by creditors (construction liens, tax liens, judgment liens).
Related terms
[CAM Charges and Expense Recoveries](/cam-charges-and-expense-recoveries/) · [Capitalization Rate (Cap Rate)](/capitalization-rate/)
Educational definition only. Not investment, financial, or brokerage advice.