Insuring title to the improvements in one party and title to the land upon which they are affixed in another party is often referred to as a “severed improvement”, a “split fee”, or a “constructive severance” transaction. The party owning title to the improvements must also own a possessory interest in the land it is affixed to by virtue of ground lease.
It is important to determine whether the severed improvements are real or personal property. Provided the improvements have, or will continue to be, permanently affixed to the land, and the estates or interests have been properly created, separately described land and improvements are capable of title insurance coverage for both owners and lenders.
Depending upon the instrument creating the interest, the interest in severed improvements and title policy should show title to the severed improvements vested as a fee estate. Qualified ownership is generally created in a lease transaction where the conditions of ownership are limited by its terms, and upon the happening of a certain event, such as the expiration of the lease, the estate will revert back to the lesser. Before insuring a fee interest, the instrument creating the separation must be unqualified as to the limitation of the term, and there may be no other conveyance by the owner of the improvements upon the happening of an event, e.g., the expiration or sooner termination of a lease. In transactions where the interest created cannot be determined, exception under Schedule A of the final policy should make reference to the estate or interest as conveyed or reserved by the instrument and its recording date. The policy must also note a Schedule B expiration to the terms and provisions of the ground lease.