Equitable title: Overview, definition and example
What is equitable title?
Equitable title refers to the right to benefit from and use a property, even if you don’t legally own it yet. It’s different from legal title, which means you’re officially recognized as the owner in public records. With equitable title, you have an ownership interest in the property, but the legal title is still held by someone else—often a seller, lender, or trustee.
Why is equitable title important?
Equitable title is crucial in real estate and financing because it allows a buyer to act as the true owner of a property before they officially take legal ownership. It gives them the right to benefit from the property—such as living in it, renting it out, or making improvements—even if they don’t hold the legal title yet.
For example, when you buy a house with a mortgage, you have equitable title because you’re making payments and using the property, but the bank holds the legal title until you pay off the loan. In business, equitable title can also come into play when someone purchases assets through installment payments but doesn’t receive full legal ownership until the final payment is made.
Understanding equitable title through an example
Imagine you’re a small business owner who agrees to buy a commercial building through a lease-to-own agreement. Under the contract, you make monthly payments, and after five years, you’ll get full legal ownership.
Even though the seller still holds the legal title, you have equitable title because you’re using the building for your business, making renovations, and benefiting from the property as if it were yours. If the seller tries to sell it to someone else before your contract is up, you could take legal action to enforce your rights as the equitable titleholder.
An example of an equitable title clause
Here’s an example of how an equitable title clause might appear in a contract:
“Upon execution of this Agreement and payment of the initial deposit, the Buyer shall obtain equitable title to the Property, granting the Buyer full rights of possession and use, subject to the terms of this Agreement. Legal title shall remain with the Seller until all payments are completed and the transfer is finalized.”
This clause makes it clear that the buyer has equitable title and can use the property, even though the seller still holds the legal title.
Conclusion
Equitable title is an important concept in real estate and business transactions. It ensures that buyers can benefit from a property before they officially receive legal ownership. By understanding equitable title, SMBs can protect their rights when purchasing property or assets through financing or lease agreements.
If you’re entering a contract where ownership is transferred over time, make sure you understand whether you have equitable title and what rights come with it. This can help you avoid disputes and ensure you get the benefits you’re entitled to as a property holder.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.