Selling LA Real Estate, the language in the Buy/Sell Contract regarding reserving minerals, and how that interacts with a current lease on the property...
I haven't seen this particular topic addressed here yet and wanted to solicit feedback from those who may know more on the topic. I'm selling a piece of real estate (acreage) that is currently leased to CHK but not yet drilled. I'm reserving minerals in the Buy/Sell contract and the language in the Louisiana Real Estate's Buy/Sell Agreement reads like this as it relates to reserving minerals:
"MINERAL RIGHTS: If SELLER transfers any mineral rights, they are to be transferred without warranty. ________% mineral rights owned by SELLER are to be reserved by SELLER and the SELLER shall waive any right to use the surface for any such reserved mineral activity or use."
So my question is: How does the language in the Buy/Sell agreement affect a current lease on a property which may grant an operator certain surface rights, say perhaps a drill site, pipeline access, roads, etc? In my particular case I have the "Drill site in a location acceptable to me" language." While I was the owner of the property at the time of leasing, I'm not likely to be the owner at the time of production. With the language in the LA Buy/Sell agreement stating that I "waive the right to use the surface for any such reserved mineral activity or use" I have to wonder if that interfers with the current lease in any way. If selling the property via this Buy/Sell agreement and waiving surface rights for development of the minerals actually served to revoke prior commitments between a lessor and lessee I would think that could pose a problem for operators somewhere down the line. Or not?
Curious to hear feedback on the topic.
Thanks in advance.
Tags: Minerals, Reserving, Rights, Surface
Views: 584
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on -
The lease agreement controls. Other than a transfer of ownership of the mineral rights, in part or in whole, a deed of sale can not supersede the terms of the lease.
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Permalink Reply by HMI on
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Thanks Skip. So what does the Seller ("me" in this case) need to do as far as disclosing and conveying that correctly to the buyer? Do I add, "Subject to the terms of the attached, existing lease document by and between parties "A" and "B" "?
If the lease is not drilled or held prior to expiration, and not renewed then I guess the subsequent landowner has say over the surface and its use since my lease obligations would have expired correct?
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Permalink Reply by Skip Peel - Mineral Consultant on
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I suggest that you give the buyer a copy of the lease for their records but you don't need to attach it to the conveyance. You may use your sample verbiage and simply reference the lease by the Instrument number, book and page, and date recorded with the parish clerk of court. Yes, if there is no production within the term of the lease, the new owner would be free to lease under whatever terms they deemed acceptable.
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But let's say that my lease is renewed this next May for 2 more years and then expires with 7.5 years left on my clock for reserving the minerals. Then an operator comes back to lease the property, at that point I'm still the one who's going to be leasing the mineral interest underneath the surface, but I can't give them any surface rights at that point can I ...since the lease that was in effect (and terms of it) when the property was sold are no longer valid and the language in the Real Estate Buy/Sell agreement says I waive off my surface rights for reserved mineral activity or use?
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Permalink Reply by Skip Peel - Mineral Consultant on
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You have no clock for "reserving" minerals. You have a servitude created on the date of the sale for whatever portion of the minerals you reserve. A mineral servitude includes the right to surface use so upon termination of the original lease you may execute a new lease which includes a lessee's right to use the surface. The mineral servitude is superior to the surface ownership rights. You can waive all you want and it does not override the LA. Mineral Code. You can enter into a new lease and specifically prohibit surface operations if you choose to do so but the code is designed not to unnecessarily hinder the production of minerals. IANAL.
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Permalink Reply by kittycatmama on -
I would NEVER allow surface operations in the initial lease. If at sometime the operator needed your surface, then they could come back and renegotiate it for a price.. Also it will be difficult to get mortgage & owner's title insurance on a dwelling with surface leased.
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KCM ... in my lease certain compensation was negotiated for certain things ahead of time and on other things I reserved the right to negotiate those items at a future date. I also have a clause in my contract that the operator shall be responsible for any increase in taxes or insurance costs as a result of their operations. :-)
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Wow. I like that. :-) When I say "clock" I was referring to the 10 year period of inactivity that I'd be watching out for after I reserve the minerals that would cause them to roll over by prescription. No?
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Permalink Reply by Skip Peel - Mineral Consultant on
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The key word here is "servitude". And yes a servitude has a prescriptive life of ten years unless interrupted by production or good faith operations which would reset the clock to zero. KCM, the lease is a done deal in HMI's case. If it allows surface operations then the surface owner has no choice but to allow such but those operations must still conform to the mineral code as to set backs and other operational restrictions. The "surface" is not leased, the lease conveys the right of reasonable access to explore/produce. I don't have personal experience with the insurance issue but suspect that if it was a problem, I would have heard of it. I advise my clients to include a "no surface use" clause in their leases but to inform the landman that they will consider allowing surface operations on a case by case basis with additional compensation. IANAL.
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Permalink Reply by kittycatmama on
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DISCLOSE, DISCLOSE,DISCLOSE before any contract is accepted if you don't want to end up in a lawsuit years down the road. Even at closing table, I would get disclosures notarized and part of the recorded records.
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Permalink Reply by P.G. on
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If someone conveyed the property with terms of retaining mineral rights but not surface rights to mine those minerals, how could they grant a new lease for something (like surface rights) they previously conveyed away?
I can see where the conveyance would be subject to any existing lease at the time of transfer but a new lease would only be for what the lessor had to lease, which would not be surface rights..
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Permalink Reply by Skip Peel - Mineral Consultant on
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Once again "lease" and "conveyance" are not the important terms. It's a servitude and as such governed by the mineral code. And that servitude is superior to surface ownership when it comes to reasonable access to explore for and produce minerals.
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