- April 19, 1996
- All Office Managers, Office Counsel and Agents
- Minimum Amount of Insurance-Leasehold
Section 7 of the Title Insurance Rate Service Association (TIRSA) Rate Manual has been amended to provide the real estate community with several alternative methods for calculating the minimum insurance that can be purchased on leasehold policies. Under the old Section 7, the minimum insurance could not be less than the aggregate amount of rent for the unexpired term of the lease.
Under the recently approved amendment, the concept of calculating the minimum amount of reinsurance on the aggregate of total rents payable under the lease was retained as one of several alternatives available to consumers. However, instead of using a 10 year yardstick, the new Section 7 provides that where the term of a lease is more than 6 years, the minimum of insurance shall not be less than the aggregate total rents for the 6 years immediately following the closing of the base transaction and, where the unexpired term is 6 years or less, the minimum amount of insurance shall not be less than the aggregate of the total rents payable under the term of the lease.
The endorsement also provides an applicant for leasehold insurance with additional alternatives, one based upon the fair market value of the land and improvements, and another upon the appraised value of the land and improvement, at the time of the closing of the leasehold transaction. In the case of proposed construction, the amendment allows an applicant to add (but does not require) the projected cost of the improvements to the amount of insurance calculated under the alternative chosen by the applicant
Finally, when an assignment of a leasehold is being insured, the new Section 7 provides that the minimum insurance shall be the greater of the following: either the full consideration paid for the lease, including mortgages assumed or taken subject to, or, the value of the leasehold estate calculated under with Section 7(A)(1) or Section 7(A)(2) of the alternatives for insuring a lease (described above).
A copy of the new Section 7 is available through the Stewart Title New York offices. The change becomes effective May 1, 1996.
Should you have any questions in this regard, please contact Company Counsel.
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