Insight | May 2017

MINERAL, OIL AND GAS RIGHTS

Who owns the mineral rights on your property?

Minerals in place underneath the surface of the earth, including oil and gas, can be owned separately from the surface of the property. So what does that mean to buyers and sellers?

BY: WILL MARTIN | GENERAL COUNSEL

Minerals and mining rights can be created and transferred separately from the surface rights, and those mineral rights constitute a separate and distinct property interest. Confusing? Maybe a bit. Let's break down the situation.

Who owns what?

The owner of the mineral rights typically has the authority to use the surface of the property in such ways and to such an extent as is reasonably necessary to obtain the minerals under the ground. Therefore, unless otherwise agreed upon, the mineral and gas rights owner may enter onto the land to explore for production, construct roads to the drill site, build pipelines, storage tanks, power stations and other structures and perform other activities consistent with the owner’s right to exercise its oil and gas rights.

A buyer should understand fully what, if any, rights are severed from a property the buyer seeks to purchase. On the other hand, a landowner or seller should understand their rights and obligations before entering into any agreement transferring mineral, oil or gas rights to their property.

North Carolina's take

North Carolina law now requires most sellers of residential property, including builders and sellers of new construction, to provide a Mineral and Oil and Gas Rights Mandatory Disclosure Statement (available on the N.C. Real Estate Commission's website) to interested buyers before they make an offer. The seller’s representations regarding the severance of mineral, oil and/ or gas rights are based upon the seller’s actual knowledge and not the representations of any real estate agent engaged by the seller or buyer.

The owners of some residential properties are not required to provide a Mineral and Oil and Gas Rights Mandatory Disclosure Statement, including, but not limited to, owners of vacant real estate (i.e., with no residential dwelling) and lenders that own property acquired after foreclosing on their loans.

The standard contract form used in many residential real estate sales in N.C. is the Offer to Purchase and Contract (form 2-T), which is jointly approved by NC REALTORS® and the N.C. Bar Association. The contract makes it clear that a buyer’s receipt of a Mineral and Oil and Gas Rights Mandatory Disclosure Statement does not modify or limit the obligations of the seller under the contract to provide “good title” to the property except as may be assumed or specifically approved by the buyer in writing.

When to get legal advice

The severance of mineral, oil or gas rights affects the title to the property. Discovering and rendering opinions on matters affecting title to real property is outside the scope of a real estate broker’s expertise and constitutes the practice of law. In addition, a real estate agent representing a seller or buyer would not be expected to conduct an independent investigation to confirm whether the seller’s representations on the Mineral and Oil and Gas Rights Mandatory Disclosure Statement are correct. A North Carolina real estate attorney should be engaged to determine whether any such rights have been severed from the property. This determination typically is a part of the title search performed by the closing attorney. If mineral, oil and/or gas rights have been or will be severed from the property, the buyer should consult with an attorney about the potential consequences of proceeding with any purchase of the property. #

The information in this article has been taken from the Buyer and Seller Advisories, which are available to NC REALTORS® online at ncrealtors.org.

Links to two publications by the N.C. Department of Justice on the subject of oil and gas leases can be found on the N.C. Real Estate Commission’s website at ncrec.gov under “Resources” and “Related Links.”

Agent Duties Regarding Mineral, Oil and Gas Rights Disclosure

Advice from the NC REALTORS® Legal Hotline

QUESTION: Regarding the Mineral and Oil and Gas Rights Disclosure Statement, are agents expected to confirm whether mineral, oil or gas rights have severed by a previous owner or by the current owner?

ANSWER: Generally speaking, the answer to your question is “no.”

There are six representations a seller must complete in the Disclosure Statement. The first three relate to mineral rights, and the last three relate to oil and gas rights. The listing agent would ordinarily not be expected to conduct an independent investigation to confirm the accuracy of any “no” answers or, in the case of a “no representation” answer, confirm that mineral, oil or gas rights have not been severed by a previous owner. Discovering and rendering opinions on matters affecting title to real property is outside the scope of a real estate broker’s expertise and constitutes the practice of law.

If a broker knew or should have known about a severance of mineral, oil or gas rights, the broker would be required to make disclosure. Typically, a broker wouldn’t know or have reason to know. However, an example where a broker did have special knowledge was brought to our attention by an NC REALTOR® member. He knew that mineral rights had been severed from the title of a lot he owned in an older subdivision because he had been told when he bought the lot that the mineral rights had been retained by the developer when the lot had first been conveyed.

If that broker becomes involved in listing or selling another lot in that same subdivision, we would suggest he discuss the matter with the seller up front. If the seller doesn’t know whether rights have been severed from the title to the property, the seller should be encouraged to engage a real estate attorney to make that determination. If the seller doesn’t want to do that, the listing agent should advise the seller that the listing agent will be under an obligation to disclose to prospective buyers the possibility that mineral rights have been severed from the title to the property.

On the other hand, if the broker represents a buyer who is interested in purchasing a lot in the subdivision, he should advise both his buyer client and the listing agent that mineral rights may have been severed from the title to the property.

HOTLINE: NC REALTORS® have free, unlimited access to our Legal Hotline and lawyers with more than 30 years experience. Call 800-443-9956 or email legal@ncrealtors.org with any questions regarding contracts, forms, fair housing, disclosure and more.