Most people buying or selling real estate will be presented with a purchase and sale agreement containing a clause on "marketable title", similar to the following taken from a multiple listing purchase and sale agreement form:

Condition of Title. Title to the Property shall be marketable at Closing. The following shall not cause the title to be unmarketable: rights, reservations, covenants, conditions and restrictions, presently of record and general to the area; easements and encroachments, not materially affecting the volume of or unduly interfering with Buyer's reasonable use of the Property; and reserved oil and/or mineral rights. Monetary encumbrances not assumed by Buyer shall be paid by Seller on or before Closing.

"Marketable title" can be defined in various ways, but we can generally say that a title is marketable if it would be accepted by most buyers without a reduction in the price paid for the property. The standard clause quoted above attempts to address this concept, but leaves ambiguities which could prove troublesome and which in my opinion cannot be cured by better drafting (except to add a clause giving the buyer the right to approve or reject the condition of title).

The following are problem areas:

1. "Rights, reservations, covenants, conditions and restrictions presently of record and general to the area." The phrase "of record" refers to a document recorded with the county auditor, but what does "general to the area" include? Zoning ordinances are clearly "general to the area," as would be "CC&R's" applicable to a residential plat or condominium project. How about a building height restriction affecting 10 out of a total of 40 or 50 lots?

2. "Easements and encroachments not materially affecting the value of . . . the Property." What does the word "material" mean in this context? Would you as a buyer want to accept any loss in value due to an easement or encroachment? Presumably not. Would you accept any encroachment? If so, would you want a reduction in price?

3. "Easements and encroachments not . . . unduly interfering with Buyer's reasonable use of the Property". This is the one I believe has the most potential for problems. While a utility easement may be acceptable to many buyers, it would not be acceptable to all buyers, and few garden-variety easements for "ingress and egress" (i.e., access) would be acceptable to any buyers, except possibly those over an existing driveway.

It can be said that some of these situations would, by definition, make the title "unmarketable", but who wants to argue the point in court? In one situation, the buyer learned that a neighbor might have an "ingress and egress" easement over the property before signing the purchase and sale agreement (there was no road, so the easement wasn't apparent). We were able to address this situation in the purchase and sale agreement. In another situation, the buyer's title commitment showed a height restriction "general to the area" (i.e., the entire plat), although it appeared on the deeds of just four particular lots. Although another title company was found to insure against this restriction, one is left to wonder if the buyers would have gotten their earnest money back if they had declined to close the deal.

I believe a better approach, particularly if there are concerns from a buyer's standpoint, is to include a contingency clause for approval of the title, similar to those provisions made for inspection and financing contingencies.

At the least, a prudent buyer will want to review the title company's preliminary title report, including any easement documents, carefully to discover any title issues well in advance of closing. These issues can then be addressed with the seller. Title issues which cannot be resolved quickly and informally should be referred to an attorney with experience in such matters promptly to resolve them prior to closing or to negotiate an extension of closing if necessary and not already done.

The above is furnished as general information relevant in the State of Washington only and may not be relied on as legal advice, specific to any situation or otherwise, by any person, whether or not a client of the firm.