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Geology Articles » Mineral Rights
Mineral Rights
Surface rights and mineral rights are not the same!
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Multiple people or companies can have ownership or lease interest in a single acre of land.
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Fee Simple - Complete Ownership
The most basic type of property ownership is a "fee simple estate". This
is complete or absolute ownership. The owner controls the surface, the subsurface, and the air above a property. The owner
also has the right to sell or bequest the land to others.
If we go back in time to the days before drilling and mining, real estate transactions were fee simple transfers. However,
once subsurface mineral production became possible, the ways in which people own property became much more complex.
Surface Rights vs. Mineral Rights
"I'll pay you $100,000 for the coal beneath your property!" This type of transaction has happened many
times. The fee simple owner may not have the interest or the ability to produce the coal beneath his property but a coal
company does.
In this type of transaction the owner wants to sell the coal but retain possession and control of the surface. The coal
company wants to produce the coal but does not want to pay an additional price to acquire the buildings and the surface.
Maybe the surface owner does not want to give up the land. So, an agreement is made to share the property. The original owner will retain the buildings and rights to the surface,
and the coal company will acquire rights to the coal. The transaction can involve all mineral commodities (known or unknown)
that exist beneath the property or the transaction can be limited to a specific mineral commodity or even a specific rock
unit - such as the "Pittsburgh Coal".
Buying a coal seam is much more complex than buying a car. When you buy a car you simply exchange money, file a title
transfer with the government and drive the car home. However, when mineral rights are purchased, removal of the mineral
is usually deferred. A mining company needs time to acquire a mining permit and schedule its equipment and workforce to
commence at the new property.
It is also possible that the new mineral owner has no intentions of production. They are simply buying the property as an
investment. Their goal could be to resell at a profit or lease the property to an operator who will assume the duties of
production. Lots of mineral properties are purchased by speculators who have no intent to mine. They are simply attempting to be "middle men" who acquire valuable property from individual owners and broker those properties to mining companies.
Disagreements During Extraction
Disputes between the mineral rights owner and the surface rights owner often arise at the time of mineral extraction.
These activities can require use of the surface and damage the surface owner's enjoyment of the property. Here is where the
wording of the mineral rights agreement or lease agreement becomes very important. The agreement may give the mineral owner
the right to extract the mineral at any time, using any methods and without compensation or regard for the surface owner.
This is why legal assistance should be obtained when selling the mineral rights away from a fee simple estate.
When purchasing
surface rights it is a good idea to carefully examine the wording of the mineral rights agreement. It may
grant significant liberties to the mineral owner at the time of extraction. Although you were not involved
in the transaction that sold the mineral rights from the property, you will nevertheless be bound by that contract. When you buy a property you buy both its assets and its liabilities. Hire an attorney who can do the necessary research and educate you about what you are buying.
When mineral rights are being severed from a property, the parties involved in the transaction should be in full agreement on how
extraction will occur, what reclamation will be done and who will be responsible for anticipated problems. Most states have mining
laws and regulations that limit the mining company's actions during the extraction process and require reclamation. However, these
laws might not meet the surface owner's expectations. To avoid problems these matters should be addressed in the contract at the
time of sale. Again, the property owner should have an attorney who can research, help negotiate and educate.
Delayed Damage to the Surface
Damage to the surface can be delayed. Subsidence of underground works or settlement of surface mined areas might not occur or be detected until decades after mining is completed. The owner of a fee simple estate should consider these facts before entering into a mineral rights sales or lease agreement. The consequences of mineral extraction will be passed on to heirs and all subsequent owners of the property. It is not uncommon for undermined properties to show no signs of subsidence for decades after mining is completed. Then, cracks and settlement begin to appear. In this situation the mining company may be long defunct and its owners long dead. There is no one to hold responsible - even if repair of any damage was written into the lease or sales agreement.
Damage to Aquifers
Most households in areas where underground mining takes place today are outside of the service of public water supplies. These property owners rely on water wells for the production of their water. When underground mining occurs beneath a property some subsidence and settlement should be expected. All subsurface voids seal themselves over time. If the mine is below the aquifer rock units which are tapped by the well, subsidence of the mine could damage the aquifer and cause its water to drain into deeper rock units. In this situation the surface owner loses his water supply. This can cause a temporary or permanent loss of the water supply.
Purchase/Sale of Surface or Mineral Rights
When buying property in areas of potential mineral development, a buyer of surface property should determine if a fee simple estate is being purchased or if ownership will be shared with others. Mineral rights transactions are normally a matter of public record and copies of deeds or lease agreements are normally filed at a government office. Real estate buyers should ask the seller to specify what rights are being conveyed. When a purchase is made in an area with historic mineral activity an attorney should confirm the extent of ownership through careful research. In many areas the sale of mineral rights are recorded in the government record in a different deed book or data base than the sale of surface property. This means that the deed to the surface property will make no mention at all about mineral rights that have been sold away. In areas of historic or potential mining activity the buyer of a property should ask the attorney to research these carefully. This will prevent future surprises and problems.
State and Local Laws Can Apply
Most states have specific laws in place that regulate mining and drilling activity. 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. These laws are the only protection available to buyers or sellers on issues that are not specifically addressed in the mineral transaction agreement.
What Qualifies as a "Mineral"?
The word "mineral" is used in a variety of contexts. Generally, ores of metals, coal, oil, natural gas, gemstones, dimension stone, construction aggregate, salt and other materials extracted from the ground are considered to be minerals. However, 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.
The Bottom Line
Mineral rights and mineral lease transactions can involve large amounts of money and be very complex. This article is intended to be no more than a brief introduction. Consultation with an attorney who has expertise in mineral transactions and the laws of your state is highly recommended as is consultation with an appraiser who specializes in the valuation of mineral properties. Buyers and sellers should beware and make a dilligent effort to be informed.
More Mineral Rights Information:
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