Municipalities have been looking for new ways to “monetize” publicly owned assets to help fund pension obligations and relieve budgetary pressures. Especially attractive is the transfer of a municipal water or wastewater system to a private operator.
Such a transfer may be accomplished by entering into a long-term lease with a private operator, under what is known as a “concession” agreement. A public sector entity instead might opt for an outright sale of assets. Too often, though, parties jump into a deal unaware of serious title defects with the real estate underlying the facilities in question.
Before a private operator can close on a concession, it will need to obtain a commitment for title insurance covering the real estate to be transferred. To be insurable, however, municipalities may have to resolve a web of title defects allowed to grow unchecked through a series of acquisitions by donation, dedication or condemnation. Moreover, the sheer number of properties that support a typical water or wastewater system greatly increases the odds that such defects are present.
Standards for resolving defects tend to be set by the insurance underwriter. For example, a title company may require a municipality to obtain quitclaim deeds, deeds of dedication or even to bring actions for declaratory judgment or to quiet title where there is no clear record of public dedication or acceptance. As with private property, public assets are not insurable without a record of ownership.
Even where ownership is undisputed, a vesting deed may contain restrictions causing defects as to insurability for a private entity. If a property was acquired by donation, the vesting deed may limit land use to a specific purpose—a purpose which may not be compatible with the intended use of a private operator. Such a deed would need to be amended to eliminate the restriction. But depending on other conditions in the deed, court approval may be required to do so.
When representing a municipality or other public entity in a sale or concession, attorneys should be prepared to track down past builders, developers, lenders and homeowner associations to obtain approvals, releases or any other remedy that may be required by the title company. However, being able to negotiate alternatives with the underwriter—and knowing what options are available—can help save a public client significant time and money.