When a tenant leases property, they typically focus on the lease and any guaranty that they may be asked to sign. They may also have the landlord’s lender execute a non-disturbance agreement to make sure that its leasehold interests are secure in the event the landlord defaults on its loan.
However, if the landlord does not have valid title to the property, the non-disturbance protection the tenant just received from the landlord’s lender will not be worth very much. Just like when a tenant purchases property, the interest in the underlying property could actually be held by an unrelated third-party. Leasehold policies protect the insured (in most cases the tenant) when the title to the property adversely affects the tenants’ rights. The policy is especially important when costly improvements are constructed within the leased premises. In fact, most lenders will require a leasehold policy when obtaining financing for improvements to the leased premises.