Issue link: https://read.dmtmag.com/i/73372
A Chain is Only as Strong as its Weakest Link T LEGAL LINE his adage has been passed down from the earliest days of the Industrial Revolution, no doubt by an early user of chains, who was surprised by some unforeseen failure under a heavy load. Today, hopefully, uniformity in manufacturing and modern mathematics suggest that all of the links in a chain are of identical strength and that we can rely on established "proof" loads. In the legal context, this early principle can be applied to a variety of issues. Th e fi rst one that comes to mind is the "chain of title" for establishing land owner- ship. In the United States, rights to land titles can usually be traced back to the grant of ownership by either the King of England or the subsequent United States govern- ments. However, the chain must be unbroken if the present title is to be legal. Th ese principles are only "important" when either acquir- ing property for personal or business use or entering into a long-term rental. Th e fi rst situa- tion is obvious: You want to make sure that you are receiving a clear and absolute title to the property you are purchasing. Th e second is not always as clear: Why should you be concerned if you are merely a tenant? Th e title is the landlord's problem, correct? Exploring the fi rst situa- tion, property is being acquired for personal or business uses: an established and "improved" property with a building or buildings, utilities, roads or road access, and rights to use IDA UNIVERSAL July-August 2012 the property for defi ned uses. Alternatively, raw land or "par- tially improved" land is being bought to build a new building or buildings. As always, certain restrictions apply, which will be discussed in more detail later. In a rental, why is "title" important? It's simple. If your business model calls for employ- ing your capital and or increasing your borrowing capacity, or fl ex- ibility is important, renting can be the way to go. However, unless you are just renting a hotel room for a few days, the legal title of your landlord can be of critical importance. A typical distribution business is well-entrenched in its facility. Racks, warehouse equipment, offi ce and computer systems are embedded, millions are on the shelves; and your "address" is a key business identity and asset. What could go wrong? You have a lease and a "right" to use the prop- erty for your business, correct? Unfortunately, your rights are only as good as your landlord's rights. For example: If you do not have the proper signed documents with your land- lord's mortgage lender, and the landlord defaults on his mortgage, his bank can cancel your lease. You have no rights, which could mean eviction or an increase in rent that you cannot fi ght. If the landlord did not obtain the correct city or area zon- ing rights for your use, your operations could be signifi cantly restricted. If the property is zoned only for "warehouse and distribu- Robert W. McIntyre IDA Association Legal Counsel tion," having a track line or other workshop could result in being shut down by the government as a prohibited "manufacturing" operation. If the landlord or its predeces- sors in title granted easements or mineral rights, you could have a severe interruption in operations for repair of some sewer main under your dock area or an oil and gas well drilled on the property. If the landlord did not obtain a clear title when purchasing the property, you could be dispos- sessed by someone earlier in the "chain of title. " In most instances today, landlords set up industrial rental properties in "single use-single asset" limited liability entities. Th us, oſt en there is little comfort in a lawsuit against a landlord… and you are usually well back in the line of creditors or angry ten- ants, with little practical recourse. How do you protect yourself against these risks? Th e simple answer is to have your lawyer involved and obtain a title report. A licensed title company will provide you and your lawyer a picture, going back at least 50 years, of each part of the "chain Continued on page 52 17