If you feel even more confused after reading about your rights than you were before you started the research, you are not alone. Law can be a treacherous path to navigate when you are not versed in the jargon.
Mineral rights and how they are applied are no different; it’s a tricky business if you don’t have any background to work with. You need to consider a few things when you want to sell a property but keep the mineral rights.
When the mineral rights belong to the seller, the sales agreement (contract) should include a clause that clearly outlines the hold of mineral rights for that property. If the contract does not include the exception clause, the mineral rights will consequentially belong to the buyer upon transfer. That is to say, if the mineral rights don’t belong to another entity, if that is the case, the seller cannot keep a privilege he does not have.
With that being said, in any real estate transaction it is always wise to have a lawyer review your contract and answer any questions you have regarding what is or is not included with the sale.
But what are mineral rights and why do they matter?
The Legal Information Institute defines mineral rights as: “The ownership of rights to minerals, including oil and gas, contained in a tract of land.”
It might seem straightforward, but there is much more behind that one sentence than meets the eye. For example, mineral rights can be separated from the property and sold individually from each other.
Types of Mineral Rights
Before establishing how to retain mineral rights, it needs to be clear what type of mineral rights you have.
The kind of claim you have will affect what you can and cannot do with the minerals found on or below the surface of the land you own.
Surface rights refer to all minerals on the property’s surface; this means that everything underneath it might be excluded.
In some cases, you will own the surface land and have no right to the commodities found below ground (as this may belong to another owner).
Mineral (subsurface) rights give the owner the right to extract minerals, such as oil or gas, from underneath the land. You can own both surface and subsurface rights or just the mineral rights and have no right over the surface.
When you only have rights to the subsurface, you can still use the part of the land above for drilling.
However, depending on state laws, you might be restricted in accessing the minerals in certain ways (some regulations protect the surface owner).
Is water protected under subsurface mineral rights?
Generally, water does not fall under the subsurface rights but under the surface rights, the same for gravel and limestone. However, there are water rights that might affect this. (source)
Royalty rights can be the form of an investor or an NPRI (non-participating royalty interest) and allow you the benefit of receiving royalty payments from production.
However, you have no rights concerning the extraction of the minerals or decision-making during the process.
Oil & Gas Rights
Oil and gas rights refer to any oil and gas below the surface, similar to subsurface rights, but it focuses on just those two minerals (and not other raw materials such as coal, for example).
A problem that might occur with oil and gas is that the minerals may escape to a subsurface claim you don’t own. Some states have set up regulations that control the royalty share of neighboring claims.
Consult with an expert in your area and determine what your state laws determine in such a scenario.
The issue of excluding mineral rights in sale agreements
On Bankrate, Steve McLinden answered a question about royalty rights and how you can keep possession of the privilege.
McLinden explained that the buyer might not agree to the retainment (which means you might have a hard time selling the property if you want to exclude the right to the minerals found below the surface). However, he provided some valuable advice for us to follow.
A loophole – for lack of a better phrase – is to transfer the mineral rights to someone else (a family member, for example) before you sell.
This way, you can inform the buyer that the rights do not belong to you and you have no actual claim.
Of course, it is not advisable to transfer it without due diligence or proper consideration.
Once you have allocated this right to someone else, it does not belong to you anymore; this in itself could cause more trouble than you were trying to avoid in the first place.
Steve provided additional options to consider when the buyer is reluctant to buy the property without the benefit of the minerals the land has to offer.
This included a proposal of only the surface rights while keeping the subsurface rights or offering a proportion of minerals rights below the surface (non-participating royalty interest).
Who owns the mineral rights to your land?
As stated earlier, just because you own the land does not mean you own the mineral rights; it might be that the mineral rights were bought years before you purchased the ground, and it doesn’t reflect on your current deed.
This happens when the mineral rights had been separated by a previous owner and sold to someone else.
Consequently, the next time the land (now separated from the mineral rights) is sold, it includes only the land.
Do mineral rights expire?
They can expire upon contract terms; for example, if the agreement held the rights for two years, the benefit would expire upon the date stipulated.
Contact a lawyer to assist you in finding out if there are any mineral deeds connected to your property; the rights might have lapsed already, which will make you the owner of the rights.
How to retain your mineral rights
Keep in mind that state law differs from one state to another; you will have to make sure that the law in your state does not have specific restrictions regarding transactions of mineral rights.
Apart from state regulations, the law is constantly evolving; today, you understand your position, and tomorrow a court decision might change that.
Always ensure you consult with an expert to receive the relevant advice to your specific situation.
Step one: do you own the mineral rights, and does it matter?
If you are not sure if you own the mineral rights of your property, you have to decide if it is worth finding out.
To establish if the rights to minerals are still attached to your property, you will have to appoint a professional to dig up the information, and it tends to be a costly exercise.
If you live in a densely populated area with homes all around you, U.S. laws might prohibit you from conducting certain types of activities to extract any minerals below ground.
In this case, there will be a limitation on your rights to protect the rights of others. It might seem discriminating, but the methods you use to retrieve the minerals may cause damage to the neighboring houses.
You stand a good chance of getting rejected when applying for a license to drill or mine on your property. These are all complicated matters that will require experts in the field to assist you.
Suppose the mineral rights belong to you, and there is no reason you cannot use reasonable methods to extract the minerals from your land; you can proceed to the next step.
However, in this case, you have another decision to make before you decide to separate the mineral rights and sell the property.
Step two: transfer or retain?
- You can transfer the deed to the mineral rights before you sell; as McLinden suggested, this may pave the way to a smoother transaction when the buyer is not keen to purchase the land with an exclusion clause. However, some lawyers might advise against this as it is a slippery slope if not handled correctly.
- If you prefer to retain the mineral rights, you can have a lawyer set up the contract to exclude the mineral rights from the land purchase. Upon sale, the property will be transferred to the buyer without the mineral rights, and you will remain the owner of that benefit.
A few examples of the rights and limitations you will have as a mineral owner
- The benefit to access the minerals
- Build roadways to transport product
- Sell, gift, or lease the mineral rights
- Restrictions on excavation depths
- Limitation on drilling activities
- General laws on mining and drilling
At the risk of sounding like a broken record, more often than not, the right to minerals is complex.
You will probably be better off having a lawyer assist you in ensuring you are getting precisely what you want and not getting into something that may cause you trouble in the future.
The issue of mineral rights can be either be reasonably easy to resolve or complex depending on what type of rights you have and if the mineral rights have been separated and conveyed before you bought the property. For intricate matters, it is advisable to consult with a lawyer who has experience in mineral rights.