CALDERWOOD & HARKNESS LLP
CONFIDENTIAL / ATTORNEY WORK PRODUCT / PRIVILEGED
INTERNAL MEMORANDUM
TO: Rafael Dominguez, Lead Associate, Real Estate Practice Group
FROM: Cynthia Ho, Working Associate, Real Estate Practice Group
DATE: February 26, 2024
RE: Title Commitment Review and Endorsement Analysis — Meridian Surety & Title Company Commitment No. LDN-2024-00873 for Ironhaven Loudoun Edge LLC Construction-to-Permanent Loan ($45,000,000) — Project Site: 44350 Prentice Drive, Ashburn, Loudoun County, VA 20147
CLIENT/MATTER: Ironhaven Data Centers LLC / Loudoun Edge Facility Construction-to-Permanent Financing
REVIEWED BY: Rafael Dominguez
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I. Purpose and Summary
This memorandum sets forth our review and analysis of the title insurance commitment (the "Commitment") issued by Meridian Surety & Title Company ("Meridian Title") under Commitment No. LDN-2024-00873, dated February 20, 2024, title officer Karen Pavelka. The Commitment was issued in connection with the $45,000,000 construction-to-permanent loan (the "Loan") from Pinnacle Federal Savings Bank ("Pinnacle" or the "Lender") to Ironhaven Loudoun Edge LLC, a Virginia limited liability company (the "Borrower" or the "SPE"), for the development of the Loudoun Edge Facility (the "Project"), a 4.5 MW edge data center to be constructed at 44350 Prentice Drive, Ashburn, Loudoun County, Virginia 20147 (Tax Map Parcel No. 087-23-5571) (the "Property" or "Project Site").
The Commitment proposes to insure a lender's title insurance policy (ALTA 2006 Loan Policy form) in favor of Pinnacle Federal Savings Bank in the amount of $45,000,000, the full amount of the Loan commitment.
Overall Conclusion. Based on our review of the Commitment, the underlying recorded instruments referenced therein, the chain of title, and applicable Virginia law, we have identified no material title defects affecting the Property. The title is insurable subject to (a) the satisfaction of the Schedule B-I requirements detailed in Section IV below, and (b) certain standard and specific exceptions set forth on Schedule B-II, which can be addressed through endorsements, removal, or affidavit as detailed in Section V below.
Recommended Endorsements. We recommend that the following endorsements be obtained in connection with the issuance of the lender's policy:
• ALTA 3.1 — Zoning: Land Under Development
• ALTA 9 — Comprehensive (Restrictions, Encroachments, Minerals)
• ALTA 17 — Access and Entry
• ALTA 28 — Easement: Damage or Enforced Removal
• Construction Loan / Disbursement Endorsement — to address future advance priority and mechanic's lien coverage
Additional endorsements under consideration are discussed in Section VI.F below.
Effective Date. We recommend that the effective date of the lender's title policy be set as March 18, 2024, the anticipated loan closing and document signing date, with a date-down endorsement or gap indemnity from Meridian Title to cover the period between the Commitment's current effective date of February 20, 2024 and the recording date of the deed of trust.
Action Items. The action items required for the closing team to satisfy all Commitment requirements and to finalize endorsement requests are summarized in Section X and should be incorporated into the master closing checklist maintained by Rafael Dominguez.
II. Background and Transaction Summary
The following summary of the transaction participants, structure, and Project details provides the context necessary for our analysis of the Commitment. This information has been compiled from the draft loan documents, organizational documents of the Borrower and its sole member, the Commitment itself, and correspondence with the parties and their respective counsel.
A. Borrower and Title Holder
Ironhaven Loudoun Edge LLC is a Virginia limited liability company formed on January 8, 2024, as a single-purpose entity ("SPE") with bankruptcy-remote features, as required by the Lender. The entity is registered with the Virginia State Corporation Commission under Entity ID S9103284. The SPE was formed specifically to hold title to the Property and to serve as the Borrower under the Loan.
B. Sole Member and Equity Sponsor
The sole member of Ironhaven Loudoun Edge LLC is Ironhaven Data Centers LLC ("IHDC"), a Virginia limited liability company registered with the Virginia State Corporation Commission under Entity ID S7842196, headquartered at 1900 Dominion Tower, Suite 400, Tysons Corner, Virginia 22182. IHDC is an established data center development and operating platform.
The equity sponsor of the Project is Cobalt Ridge Capital Partners, LP ("Cobalt Ridge"), a Delaware limited partnership, which holds an 82% membership interest in IHDC. Cobalt Ridge is providing the equity contribution for the Project, as discussed further in Section X.B below.
C. Lender and Proposed Insured
Pinnacle Federal Savings Bank is a federally chartered savings bank with offices at 800 Constitution Avenue NW, Suite 550, Washington, DC 20001. Pinnacle is the proposed insured under the lender's title policy and will be named as the beneficiary under the deed of trust securing the Loan.
D. Lender's Counsel
Pinnacle's counsel in the Loan transaction is Hargrove, Liddell & Pace LLP, 1750 K Street NW, Suite 900, Washington, DC 20006. The lead attorney on the matter is Jonathan Breckinridge, Partner, with support from Megan Tso, Senior Associate. Coordination with Hargrove, Liddell & Pace on endorsement requirements and the form of the lender's policy is ongoing and is discussed throughout this memorandum.
E. Loan Terms
F. Project Site
G. Facility Description
The Loudoun Edge Facility will consist of a single-story, 52,000 square foot data center shell with 4.5 MW critical IT load capacity. The facility is designed as an edge data center to serve enterprise and government tenants in the Northern Virginia market. Construction is to be performed by Marlowe Asset Management-Pacific Construction, Inc. under a guaranteed maximum price ("GMP") contract in the amount of $33,750,000, bonded by Allegiance Bond & Casualty Co. The building permit application (Loudoun County Building Permit No. BLD-2024-001287) was submitted and is expected to be issued on or about February 28, 2024. Issuance of the building permit must be confirmed prior to closing.
H. Pre-Leasing
Two lease agreements have been executed for space within the facility:
• Sentinel Cloud Services, Inc. — Lease executed January 15, 2024
• Ridgeline Federal Solutions LLC — Lease executed February 5, 2024
Together, these leases account for approximately 38,000 square feet or 73.1% of the total 52,000 square foot facility, exceeding the 70% pre-leasing threshold (36,400 square feet) required for Loan conversion to the permanent phase.
I. Key Security Documents
The following security documents are to be recorded or filed in connection with the Loan closing:
1. Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing (the "Deed of Trust")
2. UCC-1 financing statement — Virginia State Corporation Commission filing (personal property, equipment, and fixtures)
3. UCC-1 financing statement — Loudoun County fixture filing
4. UCC-1 financing statement — pledge of 100% of SPE membership interests (filed with VA SCC, IHDC as debtor)
J. Title Company and Zoning Counsel
Meridian Surety & Title Company serves as both the title insurer and the escrow and disbursement agent for the transaction. Meridian Title's offices are located at 44121 Harry Byrd Highway, Suite 210, Ashburn, Virginia 20147, and the responsible title officer is Karen Pavelka.
Fenwick, Gallo & Stein LLP (Partner: Patricia Gallo), located at 1 East Market Street, Suite 300, Leesburg, Virginia 20176, has been engaged as zoning counsel and has prepared (or is preparing) a zoning compliance letter confirming that the Project complies with all applicable PD-IP zoning requirements, proffers, and conditions.
K. Other Key Parties
III. Analysis of Schedule A
Schedule A of the Commitment sets forth the basic terms of the proposed title insurance, including the effective date, the proposed insured, the policy amount, and the estate or interest to be insured. Our analysis of each component follows.
A. Commitment Date and Effective Date
The Commitment bears an effective date of February 20, 2024. This is the date through which Meridian Title has searched the public records and confirmed the state of title to the Property.
We recommend that the effective date of the lender's title policy be updated to March 18, 2024, which is the anticipated loan closing and document signing date. This update is necessary to ensure that the policy provides coverage through the closing date and that no intervening liens, encumbrances, or adverse matters have been recorded between February 20 and the closing date.
To bridge the gap between the Commitment effective date and the recording date of the Deed of Trust, we recommend that a date-down endorsement or gap indemnity be obtained from Meridian Title. The date-down endorsement will confirm that no new matters affecting title have appeared in the public records since the Commitment effective date. This is standard practice for commercial loan transactions and we anticipate no difficulty in obtaining this coverage from Meridian Title. Cynthia Ho will coordinate with Karen Pavelka to arrange for the date-down search and endorsement as part of the pre-closing procedures.
B. Proposed Insured
The Commitment identifies the proposed insured as Pinnacle Federal Savings Bank, as its interest may appear.
We should confirm that Pinnacle is identified by its full and correct legal name as it appears in its federal charter and in the Loan documents. The policy should name Pinnacle as the lender, mortgagee, and beneficiary under the Deed of Trust.
We note that Hargrove, Liddell & Pace LLP may request that standard "successors and assigns" language be included in the policy. This language is standard for the ALTA 2006 Loan Policy form and provides that coverage inures to the benefit of any institution that acquires Pinnacle's interest in the Loan through assignment, participation, or securitization. We do not anticipate any issue with this request and will confirm with Meridian Title that the standard ALTA 2006 form provides this coverage as a matter of course.
C. Policy Amount
The proposed policy amount is $45,000,000, matching the total Loan commitment amount. This amount is appropriate for the construction-to-permanent loan structure, as the lender's exposure will ultimately equal the full Loan commitment upon final disbursement.
For purposes of the construction loan / disbursement endorsement (discussed in Section VI.E below), the policy will need to reflect the full $45,000,000 commitment amount, with coverage effectively increasing as construction draws are made and funded. The initial disbursement at closing will be less than the full commitment amount, but the policy amount should be set at the full $45,000,000 to avoid the need for successive policy amount increases.
We should confirm that the title insurance premium is calculated on the full $45,000,000 policy amount. Cynthia Ho will request a premium quotation from Meridian Title inclusive of the base premium and all endorsement premiums.
D. Estate or Interest Insured
The Commitment identifies the estate to be insured as a fee simple estate in the Project Site, vested in Ironhaven Loudoun Edge LLC, a Virginia limited liability company.
We must confirm the chain of title to verify that fee simple title is properly vested in the SPE. Based on our understanding of the transaction timeline, the Project Site was acquired in Q4 2023 at a purchase price of $8,250,000. A critical question is whether title was taken directly by the SPE (Ironhaven Loudoun Edge LLC) at the time of acquisition or whether title was initially taken by IHDC (Ironhaven Data Centers LLC) and subsequently conveyed to the SPE.
If title was originally taken in the name of Ironhaven Data Centers LLC and subsequently conveyed to Ironhaven Loudoun Edge LLC, we must confirm that:
1. The deed from IHDC to the SPE has been properly executed and recorded in the Loudoun County Circuit Court Clerk's Office and appears in the chain of title reflected in the Commitment;
2. The deed accurately describes the full 3.2-acre parcel, Tax Map Parcel No. 087-23-5571;
3. Any Virginia transfer tax, recordation tax, or grantor's tax implications arising from the inter-entity conveyance have been addressed; and
4. The conveyance was authorized by the organizational documents of both IHDC and the SPE.
However, because the SPE was not formed until January 8, 2024, and the land acquisition occurred in Q4 2023, it appears likely that title was initially taken by IHDC and subsequently conveyed to the SPE. We note that a conveyance from a parent entity to a wholly owned subsidiary may qualify for a recordation tax exemption under Virginia Code § 58.1-811(A)(3) (transfers between entities under common ownership), but this exemption must be properly claimed at the time of recording. Rafael Dominguez should confirm the status of this conveyance and any tax implications with the Borrower's team.
E. Legal Description
The legal description attached to the Commitment as Exhibit A must be carefully reviewed against the existing survey of the Property. This review should confirm:
1. The metes and bounds description (or plat reference) is consistent with the Loudoun County land records and accurately describes the full 3.2-acre parcel, Tax Map Parcel No. 087-23-5571;
2. The legal description matches the deed by which the SPE acquired title;
3. The legal description is consistent with the ALTA/NSPS land title survey to be delivered as a Schedule B-I requirement (discussed in Section IV.G below); and
4. There are no gaps, gores, or discrepancies between the legal description and the survey boundaries.
We note that an as-built survey will be required upon completion of construction, but the current survey should be an ALTA/NSPS land title survey satisfying the Lender's survey requirements as set forth in the Loan agreement. Any discrepancies between the legal description in the Commitment and the survey must be resolved prior to closing, and the Commitment should be updated with a corrected legal description if necessary.
We further recommend that an ALTA 25 (Same as Survey) endorsement be obtained (discussed in Section VI.F below) to confirm that the legal description in the policy is identical to the survey description.
IV. Analysis of Schedule B-I (Requirements)
A. Overview
Schedule B-I of the Commitment sets forth the conditions and requirements that must be satisfied before Meridian Title will issue the lender's title policy. These requirements are standard for commercial loan transactions in Virginia and include documentation, recording, and verification conditions. Below is a detailed analysis of each requirement, together with our recommendations for satisfaction.
B. Requirement 1 — Recording of Deed of Trust
Schedule B-I requires that the Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing (collectively, the "Deed of Trust") be properly executed by Ironhaven Loudoun Edge LLC, as grantor/borrower, and recorded in the Loudoun County Circuit Court Clerk's Office. The Deed of Trust will secure the $45,000,000 Loan and is intended to constitute a first-priority lien on the Project Site.
To satisfy this requirement, we must confirm that the Deed of Trust:
1. Is executed by a duly authorized officer or manager of Ironhaven Loudoun Edge LLC, with authority conferred by the Operating Agreement and the resolutions of IHDC as sole member;
2. Contains a proper acknowledgment and notarization in compliance with Virginia Code § 55.1-300 et seq. (requirements for recordable instruments);
3. Identifies Pinnacle Federal Savings Bank as beneficiary and names a proper trustee (or substitute trustee) as required under Virginia deed of trust law;
4. Contains the complete and accurate legal description of the Property;
5. Includes the assignment of leases and rents, security agreement, and fixture filing provisions required by the Lender;
6. Is accompanied by all required recording information, including the Virginia Indexing Guidelines cover sheet; and
7. Includes the applicable recordation tax calculation and payment (discussed under Requirement 4 below).
Meridian Title will hold the Deed of Trust in escrow for recording following the closing on March 18, 2024, with final recording expected on or about March 29, 2024. Cynthia Ho will coordinate the recording logistics directly with Karen Pavelka at Meridian Title.
C. Requirement 2 — Evidence of Authority / Entity Documentation
Meridian Title requires certified copies of the organizational documents of Ironhaven Loudoun Edge LLC, demonstrating the entity's valid existence, good standing, and authority to execute the Loan documents and grant the Deed of Trust. Specifically, the following items are required:
(a) Articles of Organization of Ironhaven Loudoun Edge LLC, as filed with the Virginia State Corporation Commission (Entity ID S9103284), together with any amendments thereto;
(b) Operating Agreement of Ironhaven Loudoun Edge LLC, confirming that Ironhaven Data Centers LLC is the sole member and identifying the persons authorized to execute documents on behalf of the SPE;
(c) Certificate of Good Standing from the Virginia State Corporation Commission, dated no more than thirty (30) days prior to the closing date;
(d) Resolutions of Ironhaven Data Centers LLC, as sole member of the SPE, authorizing the borrowing of $45,000,000 from Pinnacle, the execution and delivery of all Loan documents, and the granting of the Deed of Trust encumbering the Property;
In addition, Meridian Title requires similar documentation for Ironhaven Data Centers LLC (VA SCC Entity ID S7842196) in its capacity as the sole member of the SPE and as the pledgor of the membership interests in the SPE. This documentation includes:
(a) Articles of Organization (or Certificate of Formation) and Operating Agreement of IHDC;
(b) Certificate of Good Standing from the Virginia State Corporation Commission;
(c) Resolutions or consent of the members/managers of IHDC authorizing IHDC's actions in connection with the Loan, including (i) causing the SPE to borrow the Loan, (ii) pledging 100% of the membership interests in the SPE, and (iii) executing the guaranty and environmental indemnity, if applicable.
These items will be compiled and delivered as part of the Borrower's Closing Certificate and Secretary's Certificate at closing. Rafael Dominguez is responsible for coordinating collection of these documents from the Borrower's team and confirming their sufficiency with Meridian Title.
D. Requirement 3 — Title Affidavit / Gap Indemnity
Meridian Title requires a standard owner's / borrower's title affidavit to be executed by a duly authorized representative of Ironhaven Loudoun Edge LLC at closing. The affidavit must certify the following:
(a) There are no additional liens, judgments, or encumbrances affecting the Property that have arisen or been recorded since the Commitment effective date of February 20, 2024;
(b) There are no parties in possession of the Property other than the owner, and no party has any right to possession adverse to the owner's interest;
(c) There are no mechanic's liens or claims for unpaid labor, services, or materials relating to the Property, and no construction, site preparation, grading, demolition, or other physical work has commenced on the Property as of the closing date;
(d) There are no unrecorded easements, agreements, options, or rights of first refusal affecting the Property other than those disclosed in the Commitment; and
(e) The owner has not entered into any contract or agreement to sell, transfer, or encumber the Property other than as contemplated by the Loan documents.
The certification regarding the absence of construction activity is of particular importance in this transaction, given the construction loan context and the mechanic's lien priority analysis discussed in Section VIII below. Although construction has not commenced as of the date of this memorandum, we must confirm that no site preparation work, demolition, grading, or other physical activity has occurred on the Property between the Commitment effective date and the closing date. Any such activity could potentially trigger mechanic's lien priority issues under Virginia law.
We recommend that Ironhaven Loudoun Edge LLC execute a standard form title affidavit at closing in a form acceptable to Meridian Title. Rafael Dominguez should obtain and review the form of affidavit from Meridian Title in advance of closing to confirm its scope and content.
E. Requirement 4 — Payment of Title Premium and Recording Fees
This is a standard requirement for payment of the title insurance premium and all associated recording fees and taxes at or prior to closing. The title premium will be calculated based on the full $45,000,000 policy amount, plus endorsement premiums for each endorsement requested.
Virginia imposes a recordation tax on deeds of trust under Virginia Code § 58.1-803, which is calculated at a rate of $0.25 per $100 of the amount of the obligation secured (or portion thereof). For a $45,000,000 deed of trust, the recordation tax would be approximately $112,500 (subject to confirmation of the applicable rate and any local supplemental taxes imposed by Loudoun County).
Additionally, the Virginia grantor's tax under Virginia Code § 58.1-802 generally applies to deeds of conveyance rather than deeds of trust, but the applicability to the Deed of Trust should be confirmed. Recording fees payable to the Loudoun County Circuit Court Clerk must also be calculated and arranged for payment.
Under the terms of the Loan, the Borrower is responsible for all title insurance premiums, recording fees, and transfer taxes. Cynthia Ho will obtain a preliminary closing cost estimate from Meridian Title to be included in the closing statement.
F. Requirement 5 — UCC Filings
The Commitment requires the filing of UCC-1 financing statements in connection with the Loan, as follows:
(a) Virginia State Corporation Commission Filing: A UCC-1 financing statement naming Ironhaven Loudoun Edge LLC as debtor and Pinnacle Federal Savings Bank as secured party, covering all personal property, equipment, and fixtures of the SPE. This filing perfects the Lender's security interest in personal property and movable equipment under Virginia UCC Article 9.
(b) Loudoun County Fixture Filing: A UCC-1 financing statement filed as a fixture filing with the Loudoun County Circuit Court Clerk, perfecting the Lender's security interest in fixtures related to the data center facility. The fixtures include mechanical, electrical, and plumbing ("MEP") equipment, generators, uninterruptible power supply ("UPS") systems, cooling equipment, raised floor systems, and other furniture, fixtures, and equipment ("FF&E") with an estimated aggregate value of $5,800,000. The fixture filing must include the legal description of the Property and the name of the record owner to satisfy Virginia Code § 8.9A-502(b).
As a precondition, UCC lien searches must be ordered and reviewed against both Ironhaven Loudoun Edge LLC and Ironhaven Data Centers LLC to confirm that no prior UCC filings encumber the collateral. The SPE was formed on January 8, 2024, and no prior UCC filings should exist against it, but this must be confirmed. The UCC search results for IHDC must be reviewed to ensure that existing filings from IHDC's prior facilities (IHDC has approximately $185,000,000 in total debt across existing facilities) do not extend to assets of the SPE or the Loudoun Edge Facility. This analysis is discussed further in Section IX below.
G. Requirement 6 — Survey
Meridian Title requires the delivery of a current ALTA/NSPS Land Title Survey of the Project Site. The survey must be:
(a) Certified to the proposed insured (Pinnacle Federal Savings Bank), the Borrower (Ironhaven Loudoun Edge LLC), and the title company (Meridian Surety & Title Company);
(b) Prepared in accordance with the 2021 Minimum Standard Detail Requirements for ALTA/NSPS Land Title Surveys, including all optional Table A items specified by the Lender;
(c) Dated or re-certified no more than ninety (90) days prior to the closing date; and
(d) Prepared and certified by a licensed land surveyor registered in the Commonwealth of Virginia.
The survey must depict all of the following: the boundaries of the Property consistent with the legal description in the Commitment and the deed; all recorded easements, rights-of-way, and encroachments (if any); the location of existing utilities, including above-ground and underground lines; the FEMA flood zone classification; all access points to public streets; setback lines applicable under the PD-IP zoning; and the location of any existing improvements (if any) on the Property.
The survey will serve as the basis for removal of the standard survey exception from Schedule B-II (discussed in Section V.B below) and will be used to confirm that the utility easements identified in Schedule B-II are located within defined corridors that do not encroach on the proposed building footprint.
The Borrower is responsible for ordering and delivering the survey. Cynthia Ho will follow up with the Borrower's team to confirm the status and expected delivery date.
H. Requirement 7 — Tax Verification
Meridian Title requires confirmation that all real estate taxes and assessments levied against the Property by Loudoun County (and any applicable special taxing districts) are current and paid through the closing date. This confirmation must be obtained from the Loudoun County Commissioner of the Revenue's office and/or the Loudoun County Treasurer's office.
Any prorations of real estate taxes between the Borrower (as owner) and the closing date will be handled on the closing settlement statement. If taxes for the current year (2024) have not yet been assessed or are not yet due, a credit or escrow arrangement may be required.
Cynthia Ho will verify the tax payment status for the Property prior to closing and report any delinquencies or outstanding assessments.
I. Requirement 8 — Judgment and Lien Searches
Meridian Title requires the following searches to be completed and reviewed:
These searches are conducted through the applicable federal and state courts, the Internal Revenue Service, the Virginia Department of Taxation, and the Virginia circuit courts. Given that the SPE was formed only weeks ago (January 8, 2024), we expect the search results for Ironhaven Loudoun Edge LLC to be entirely clean. The search results for IHDC and Cobalt Ridge (if required) must be reviewed to confirm no outstanding judgments or liens that could affect the transaction.
Any matters revealed by the searches must be cleared prior to closing. Cynthia Ho will coordinate the ordering and review of all searches and will report results to Rafael Dominguez promptly upon receipt.
J. Additional Requirements — Summary of Action Items
The following table summarizes each Schedule B-I requirement, the responsible party, current status, and target completion date:
All Schedule B-I requirements should be tracked on the master closing checklist. Rafael Dominguez should confirm that these items are incorporated into the checklist and that status updates are provided at the next closing team meeting.
V. Analysis of Schedule B-II (Exceptions from Coverage)
A. Overview
Schedule B-II of the Commitment identifies the exceptions to title insurance coverage that will appear in the lender's policy unless they are removed, insured over through endorsements, or otherwise addressed. These exceptions include both standard (pre-printed) exceptions common to all ALTA policies and specific exceptions based on the results of Meridian Title's search of the public records.
Our analysis of each exception follows, together with our recommendation for treatment. The recommendations are summarized in the table set forth in Appendix A.
B. Exception 1 — Standard / General Exceptions (Pre-Printed)
The standard pre-printed exceptions in the Commitment mirror those found in the ALTA 2006 Loan Policy form. Each is analyzed individually below.
1. Rights or Claims of Parties in Possession
"Rights or claims of parties in possession not shown by the public records."
This is a standard exception that can and should be removed in connection with a commercial loan transaction. Removal is conditioned upon (a) the delivery of the borrower's title affidavit certifying that no parties other than the owner are in possession of the Property, and (b) the ALTA/NSPS survey confirming that there are no visible signs of adverse possession or occupancy by unauthorized parties.
As of the Commitment effective date, no construction has commenced on the Property and no tenants are in possession (the Sentinel Cloud Services and Ridgeline Federal Solutions leases are executed but the facility has not been built). There are no known third parties in possession of the Property.
Recommendation: Remove upon delivery of title affidavit and survey. No endorsement required.
2. Encroachments, Overlaps, and Boundary Line Disputes
"Encroachments, overlaps, boundary line disputes, or other matters which would be disclosed by an accurate survey and inspection of the premises."
This exception is removed upon receipt of a satisfactory ALTA/NSPS survey disclosing no encroachments, overlaps, or boundary line disputes affecting the Property. In addition, the ALTA 9 (Comprehensive) endorsement discussed in Section VI.B below provides affirmative coverage against loss arising from encroachments of existing improvements onto easements or across boundary lines.
Recommendation: Remove upon receipt of ALTA/NSPS survey. Supplement with ALTA 9 endorsement for affirmative encroachment coverage.
3. Easements or Claims of Easements Not Shown by the Public Records
"Easements, or claims of easements, not shown by the public records."
This exception addresses unrecorded easements that may affect the Property. It should be removed upon delivery of (a) the borrower's title affidavit certifying that the owner has not granted any unrecorded easements or entered into any unrecorded agreements granting easement rights, and (b) the ALTA/NSPS survey confirming no visible evidence of unrecorded easements (such as worn paths, utility lines not shown in the land records, or other physical evidence of adverse use).
There are no known unrecorded easements affecting the Property based on our review of the Commitment and discussions with the Borrower's team.
Recommendation: Remove upon delivery of title affidavit and survey. No endorsement required.
4. Mechanic's Liens
"Any lien, or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by the public records."
This exception is of critical importance in the context of a construction loan transaction. Virginia is an "inception of work" priority state — under Virginia Code § 43-1 et seq., a mechanic's lien attaches as of the date that visible commencement of work begins on the project, and the lien relates back to that date for priority purposes. This means that if any construction, site preparation, grading, demolition, or other physical work commences on the Property before the Deed of Trust is recorded, mechanic's liens for that work (and potentially all subsequent work) could claim priority over the Deed of Trust.
Because construction has not commenced as of the Commitment effective date (February 20, 2024), and the Deed of Trust is to be recorded prior to commencement of any construction activity, the Deed of Trust should have priority over all future mechanic's liens. The following steps are essential to preserving this priority:
(a) The Borrower must certify in the title affidavit that no construction, site preparation, grading, demolition, or other physical work has commenced on the Property as of the closing date;
(b) A physical inspection of the Property should be conducted by Meridian Title or by Calderwood & Harkness personnel prior to recording of the Deed of Trust to confirm that no visible work has commenced (discussed further in Section VIII below);
(c) The Deed of Trust must be recorded before any work begins on the Property; and
(d) The construction loan / disbursement endorsement (discussed in Section VI.E below) will provide ongoing mechanic's lien coverage for each construction draw during the construction period.
We should confirm with Karen Pavelka at Meridian Title that this mechanic's lien exception will be modified or removed upon (a) recording of the Deed of Trust prior to commencement of construction, and (b) delivery of the borrower's affidavit confirming that no work has commenced. Additionally, we recommend coordination with James A. Whitmore, PE, of Whitmore & Associates, PC (the independent engineer) regarding confirmation of the construction commencement date for the official construction schedule.
Recommendation: Modify or remove upon recording of Deed of Trust prior to construction commencement and delivery of borrower's affidavit. Supplement with construction loan / disbursement endorsement for ongoing coverage. This exception requires careful coordination and is a priority action item.
5. Taxes or Assessments Not Shown as Existing Liens
"Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records."
This exception relates to taxes that may have been assessed but are not yet reflected in the public records. For prior tax years, this exception can be removed upon confirmation that all taxes have been paid in full. For the current year (2024), taxes that are not yet due and payable will remain as a standard exception. This is a universal exception that cannot be eliminated for current-year taxes.
Recommendation: Remove for prior years upon confirmation of tax payment. Accept as standard exception for current year taxes not yet due and payable.
C. Exception 2 — Real Estate Taxes and Assessments
"Real estate taxes for the year 2024 and subsequent years, not yet due and payable."
This is a standard and universal exception that appears in virtually all title insurance policies and cannot be removed. Real estate taxes for 2024 will become a lien upon the Property as they are assessed and become due, and the policy does not insure against such taxes.
We should confirm that all real estate taxes for prior years (2023 and earlier) have been paid in full. Any proration of 2024 taxes between the current owner and the closing date will be addressed on the closing settlement statement.
Recommendation: Accept as standard exception. Confirm prior year taxes are paid current. No endorsement required.
D. Exception 3 — Utility Easements (Specific Recorded Instruments)
The Commitment identifies several recorded utility easements affecting the Property. Each is analyzed below.
1. Northgate Partners LLC Easement
The Commitment identifies an easement for electric utility lines in favor of Northgate Partners LLC (or its predecessor), recorded in the Loudoun County land records. Two utility feeds from Ostrander Enterprises are contemplated for the facility to provide the redundant power supply required for data center operations.
This easement supports the Project and is essential to the facility's operations. However, it must be confirmed that the easement is limited to a defined corridor as shown on the survey and does not encroach on the proposed building footprint or interfere with planned construction. The terms of the easement should be reviewed to confirm that the easement holder's rights (including the right to enter the Property for maintenance and repair) do not unreasonably burden the Property or conflict with the Deed of Trust lien.
We recommend obtaining an ALTA 28 (Easement — Damage or Enforced Removal) endorsement to insure against loss or damage to improvements resulting from the exercise of easement rights by Ostrander Enterprises. This endorsement provides the Lender with protection in the event that Ostrander Enterprises requires the removal of improvements within the easement corridor.
Recommendation: Accept as a Permitted Exception, provided the easement is limited to a defined corridor shown on the survey and does not encroach on the building footprint. Obtain ALTA 28 endorsement.
2. Loudoun Water Easement
The Commitment identifies an easement for water and sewer utilities in favor of Loudoun Water, recorded in the Loudoun County land records. This easement provides the water and sewer service required for the facility's cooling systems and sanitary needs.
The same analysis applies as for the Ostrander Enterprises easement: confirm location on the survey, verify that the easement does not interfere with the building footprint or planned improvements, and confirm that the terms do not create unreasonable burdens on the Property. The ALTA 28 endorsement discussed above will also cover this easement.
Recommendation: Accept as a Permitted Exception, subject to the same conditions as the Ostrander Enterprises easement. ALTA 28 endorsement to cover.
3. Telecommunications / Fiber Easement
The Commitment identifies an easement for fiber optic cable recorded in the Loudoun County land records. Given that the facility is a data center, fiber connectivity is not only acceptable but essential to the Property's highest and best use. The availability of high-capacity fiber infrastructure is a key value driver for the Loudoun Edge Facility and is a primary reason the tenants (Sentinel Cloud Services and Ridgeline Federal Solutions) have elected to lease space at this location.