What on Earth do mineral rights have to do with relocation? When relocation policies include home sale programs, it’s important to make sure the properties you take on don’t pose a big risk to your company. Because of this, your employees must have a clear, marketable title on their properties to qualify for a home sale program.
But mineral rights, defined in detail below, can complicate a home sale, causing problems with valuation and adding risk. If mineral rights are severed from the property rights or if an employee wants to sever the mineral rights themselves, the resulting complications may be something your company wants to avoid.
What are mineral rights?
Simply stated, mineral rights are a landowner's right to receive a portion of the profits of any minerals that are extracted from the land. The term “mineral rights” refers to the numerous ways the owner can profit from the resources in the ground on their property.
In most countries of the world, all mineral resources belong to the government. This includes all valuable rocks, minerals, oil or gas found on or within the earth. Organizations or individuals in those countries cannot legally extract and sell any mineral commodity without first obtaining an authorization from the government.
However, in the United States, ownership of mineral resources was originally granted to the individuals or organizations that owned the surface. These property owners had both "surface rights" and "mineral rights." This complete private ownership is known as a "fee simple estate."
Fee simple is the most basic type of ownership. The owner controls the surface, the subsurface and the air above a property. The owner also has the freedom to sell, lease, gift or bequest these rights individually or entirely to others.
Once commercial mineral production became possible, the ways in which people own property became much more complex. Today, the leases, sales, gifts and bequests of the past have produced a landscape where multiple people or companies have a partial ownership of or rights to many real estate parcels. Obviously, this creates difficulties when it comes time to sell.
What constitutes a mineral, and how is it extracted?
Based on this information, it may be assumed that mineral rights affect only oil-rich states such as Texas, Oklahoma and Louisiana; however, mineral rights are an issue in other states such as Pennsylvania, Michigan, North and South Dakota, Colorado, Kansas and New York. Further, the term “mineral” encompasses ores of metals, coal, oil, natural gas, gemstones, dimension stone, construction aggregate, salt and other materials extracted from the ground. There is no definition of "mineral" that applies in every situation, and what is considered to be a "mineral" can vary from state to state.
A common means of extracting the mineral from the earth is through fracking. Fracking (also referred to as hydraulic fracturing or hydro-fracking) is the process of drilling down into the earth before a high-pressure water mixture is directed at the rock to release the gas inside. Water, sand and chemicals are injected into the rock at high pressure which allows the gas to flow out to the head of the well. The process is carried out vertically or, more commonly, by drilling horizontally to the rock layer. The process can create new pathways to release gas or can be used to extend existing channels.
Safe hydraulic fracturing is the biggest single reason the U.S. is having an energy revolution right now, one that has changed the U.S. energy picture from scarcity to abundance. Fracking is letting the U.S. tap vast oil and natural gas reserves that previously were locked away in shale and other tight-rock formations. This also means that people are paying more attention to what might be under their property and if they can profit from it.
Most states have laws that regulate mining and drilling activity and also govern the transfer of mineral rights from one owner to another. There are also laws that regulate the sale of surface and mineral property. These laws are meant to protect the environment and all parties involved in property transactions. For example, in New Mexico, most property owners do not have mineral rights; rather, it is the state or local government who owns the rights.
Although mineral rights laws are similar from state to state, small variations can make an enormous difference when applied to individual transactions. In addition, mining and oil and gas regulations can vary significantly from one state to another. These can also have a huge effect on different transactions. Each transaction is unique and should be carefully considered before any permanent agreement is made with regards to the sale of a property and/or its mineral rights.
So, how do mineral rights affect relocation?
In order to avoid major valuation problems and minimize post-closing liability risks, clients may elect to evaluate on a case-by-case basis if they will allow properties with mineral rights severed from the surface rights to participate in a qualified home sale program. If a home with severed mineral rights is allowed to participate in the home sale program, you should take steps to alleviate the potential complications. Lexicon recommends adding language to the deed upon receipt of sufficient documentation that: 1) an employee purchased the property with surface rights only, and 2) the chain of title is clear.
When buying property in areas of potential or historic mineral development, a buyer should determine if they are purchasing a fee simple estate or if ownership will be shared with others. Mineral rights transactions are normally a matter of public record, and copies of deeds or other agreements are filed at a government office. It may be beneficial for your company to make employees moving into such areas aware of this.
Real estate buyers should ask the seller to specify what rights are being conveyed and have an attorney confirm that the seller owns what is being sold. In many areas the sale of mineral rights are recorded in the government record in a different deed book or database than the sale of surface property. This means that the deed to the surface property might not mention mineral rights that have been sold away. In areas of historic or potential mining activity, the buyer of a property should hire an attorney who can do this research and confirm what is being purchased. This can prevent future surprises and problems.
Because mineral rights issues continue to pervade the U.S., touching sections of a number of states and potentially affecting many transferring employees, we recommend adding a clause to existing relocation policies indicating that homes with mineral rights severed from surface rights may not be eligible to participate in a qualified home sale program. Further, employees who purchase homes in the destination location should also be advised that if they purchase properties with severed mineral rights, they may not be eligible for a qualified home sale program in a subsequent relocation.