Last Updated on Many mineral resources can be found beneath the earth’s surface. As a result, if you happen to stumble on oil, natural gas, copper, or zinc, among others – on your surface land, don’t be too excited about the prospect of making a profit by selling them. The practice of a land owner retaining mineral rights when selling property is common in Texas, California, New Mexico, and many other states.
This is because there are distinct differences between surface and mineral rights. Purchasing a tract of land gives you the right over everything above the ground – also known as surface rights. On the other hand, before you can engage in mineral exploration or use any minerals found beneath your property, you must own the mineral rights to them.
It must be noted that a landowner can retain mineral rights and surface rights. However, in many cases, the mineral estate can be independent of the surface estate (called severing). This separate ownership is an example of a split estate (severed mineral rights).
Mineral rights holders must acquaint themselves with some important details, including the benefits of retaining their mineral rights. This guide explores what happens when a seller wants to retain mineral rights but sell the surface property. Keep on reading!
What does it mean to sell a property and retain mineral rights?
A seller who wishes to sell a parcel of land can decide to limit the access of the new owner to everything above the surface, which is covered by the surface rights. As a result, the seller will still have rights over any minerals beneath the land.
This implies that the right to exploit any minerals remains with the seller. When a seller owns the mineral rights, any contract must show a clause that blatantly reveals the ownership of the mineral rights for the specific property. Otherwise, the rights will be owned by the new buyer.
Can you sell your property and retain mineral rights?
Yes, you can sell your land or property and retain the mineral rights. As mentioned earlier, it is possible to sever the mineral estate from the surface estate as part of the selling process. For this reason, a surface rights owner can choose to sell land but retain the ability to explore or exploit the minerals beneath the land or property.
Most sellers retain ownership of any potentially profitable mineral rights, such as oil or gas. They can achieve this in three different ways:
- Sell the rights to another entity.
- Participate in the mining/drilling activity or develop the resources with another entity (e.g., an oil and gas company). They will share a portion of the drilling costs and the profits of developing the resources.
- Enter an oil and gas lease agreement. A mineral owner can decide to lease the rights to a gas or oil company. In this case, the contract gives the oil and gas company the sole right to use the minerals for a specific period in exchange for royalties. When the lease expires, the rights revert to the original owner. The same mineral rights cannot be leased to another interested entity during the lease period.
How do you retain mineral rights?
Most property owners wonder if it is possible – and how – to retain their mineral ownership when they wish to sell their property. However, before any rights sale or retention can be done, a landowner must ensure they own the mineral rights to the property. If so, a landowner must become acquainted with the different ways to retain their mineral rights. The following processes are common:
Convey the mineral rights
As mentioned earlier, surface owners can own surface and mineral rights to a piece of land. They may wish to sell land but retain the mineral rights. This is called a split estate. Conveying only valuable mineral rights is the easiest route. Often, this is one of the first options sellers explore.
If you find a buyer that only wants to acquire the surface property rights but not the mineral rights, you can retain the latter. However, it must be clearly stated in the legal contract that the mineral rights belong to you. Otherwise, the mineral rights are transferred to the new buyer upon transfer.
Besides this, you can simply transfer the mineral deeds before you put the property up for sale. In most cases, this often makes the transaction smoother. After all, the new buyer is not purchasing land that has an exclusion clause. However, unless done legally, it might not be the best path to follow.
Furthermore, to retain the rights over minerals, it can be a wise option to employ the services of an attorney to manage the transfer of specific rights during the sale of the land. By simply conveying the mineral rights, an owner can sell property while retaining the mineral rights.
What Is a Mineral Reservation Deed?
A mineral reservation deed is a legal document used in real estate transactions that allows an owner to retain rights to any minerals found on their property. These deeds often come into play with properties containing natural resources like oil, natural gas, or coal.
The owner may choose to develop the mineral reserves themselves or lease them out to a third party for extraction.
In some cases, these deeds can also be used to limit development on the property to protect sensitive geological features.
Potential buyers and sellers must fully understand the terms of a mineral reservation deed before entering into any agreements. There may be a considerable impact on the value and use of the property.
What is a mineral deed?
A mineral deed is a document that transfers ownership rights to minerals located below the surface of a property. This can include valuable materials such as coal, natural gas, and oil.
A mineral deed typically specifies the exact location and depth of the minerals and any conditions or limitations on extracting them. Individuals or companies interested in extracting minerals must ensure they have proper ownership rights before proceeding with extraction.
Without a valid mineral deed, they may face legal repercussions for trespassing or theft of property. Mineral deeds also play a crucial role in establishing fair financial compensation for mineral rights owners when their resources are extracted. Overall, mineral deeds serve as protection for both individuals and companies involved in extracting minerals from properties.
Sell Only Surface Rights
When you have the rights to everything above and below the land, then you can decide to sell only the surface rights. These can include buildings, trees, rocks, and more. While surface rights might not be as profitable as selling your mineral rights, you can still make a significant amount of money by selling them.
In doing this, you sever the mineral rights from the surface rights. Severed rights imply that even though the right to the property has been sold to someone else, you retain the right to explore, sell, or lease the minerals beneath the land surface.
Transfer the Mineral Rights to a Third Party
While this method can be a bit sneaky, some buyers might simply prefer to transfer their rights to another party. This ensures that they can eliminate the mineral rights entirely from the deal.
Are there any downsides when retaining mineral rights?
When you are the owner of mineral and surface rights to a particular parcel of land, many parties may be interested in purchasing the surface rights, mineral rights, or both.
So it is only natural to consider the possible advantages and downsides of selling or retaining your mineral rights.
As a surface and mineral rights owner, be aware that some prospective buyers may not fancy purchasing land with its minerals owned or maintained by another party. For many buyers, this can seem like an invasion of privacy.
The implication is a reduced value for the specific piece of land. It is not uncommon to find people unwilling to agree to the retainment of mineral rights.
In such cases, selling a property might prove more difficult if you have severed mineral rights.
However, some sellers might prefer to transfer the mineral rights to their relatives before selling the piece of land. As a result, only the surface rights can be negotiated, and the mineral rights will be retained. Besides this, the seller might choose to sell only a part of the mineral rights.
Conclusion
Having the right to explore or extract minerals can be very valuable. Mineral rights ownership is different from owning surface rights to land.
As a mineral and surface owner, selling only the land while retaining the mineral rights is becoming a popular option. Mineral owners can keep making money from the minerals even though the rights to the surface use of the land belong to someone else. This is usually covered by royalty deeds.
Many people choose to lease their rights to another party in exchange for royalty payments. Or they might participate in the production of the minerals in question.
If you wish to sell a property while retaining the mineral rights, you must know how to go about it. While many advantages are associated with a landowner retaining mineral rights after a property sale, some drawbacks cannot be ignored.
In most cases, it makes sense to contact expert legal services experienced in mineral law. They will be able to provide you with the necessary details to conduct due diligence before making an informed decision.
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