When you buy land for the first time, you may not know what’s explicitly included in a transaction where only the surface rights are conveyed.
You, therefore, may not know that land ownership goes beyond what you see.
In this blog, we’ll talk about everything you must know about surface rights.
Surface rights are one of the two levels of ownership that you may possess.
The other is mineral rights, which allows someone to exploit the underground resources.
If you don’t hold both of these rights to a property, then you could have to “share” your property in a way you don’t anticipate.
Here’s everything you must know about surface rights before getting started.
1. Surface rights include any structure on the property
Surfaces rights are the rights to the surface area of a piece of land as well as any structures on the property.
Surface rights also include farmland or above-ground resources like trees, plants, or water.
The landowner will still have to abide by local land use ordinances, but outside of that, they are free to do what they wish with any structures on the property.
They may also dig down into the land to bury storage tanks or dig for wells.
Now you may be thinking, “I thought I owed everything on my property. How did I end up with only the surface rights?”
Well, surface and mineral rights in the U.S. typically start out together as a unified or fee simple estate, but landowners can choose to separate these rights if they own both.
For example, if a landowner owns both the surface estate and the mineral estate and then chooses to sell the mineral rights, they would retain only the right to the land surface.
The new owner of the mineral rights would be able to exploit the underground resources in any way that they choose.
And when the original owner sells their property, the new mineral rights holder will still retain their mineral rights.
Thus, all succeeding owners of the property will only hold the surface rights.
2. The mineral rights holder is the dominant party when it comes to accessing subsurface resources
The mineral rights holder is the owner who has access to any subsurface resources on the property.
These resources may include oil, natural gas, gold, silver, copper, iron, coal, uranium, and other minerals.
One important distinction is that sand, gravel, limestone, and subsurface water are generally not considered mineral rights, and thus these typically belong to the surface rights holders.
Because mineral rights allow others to access your land, it’s often best to hold both the surface rights and the mineral rights of the property if you believe there could be anything of value under your lot.
If you cannot hold both because the mineral rights have already been severed, then you should take a moment to research how likely it is that the mineral rights holder would want to utilize their rights.
For example, is there a history of mineral extraction in the area?
If not, then owning the mineral rights may be less of a concern.
However, even if there is a possibility that someone will try to extract minerals on your property, you should know that most mineral rights holders (oil, gas, mining companies) will attempt to work out a situation that minimizes disruption.
3. Not sure what you own? Review the mortgage detail or property deed for your land
It’s best to learn what you’re purchasing prior to actually purchasing it.
However, if you’re reading this and thinking, “I have no idea if I own both the surface and mineral rights to my land,” then you’ll want to start by checking your mortgage and/or property deed.
If the deed is not clear on whether mineral rights are being conveyed, your best option is to hire a title company to complete a mineral rights search for you.
4. Negotiate a payment that compensates you as the surface rights holder for current and future losses
If your property is going to be damaged in some way in order to extract its minerals, then you should try to negotiate a payment that compensates you as the surface rights holder for all current and future losses.
This is important because usage for mineral purposes can often cause surface-related damages and issues.
This is easier to do if you hold both the mineral and surface rights as you can include certain provisions in the oil or gas lease that protect you.
If you do not own both sets of rights, it will be dependent on the state as to whether the mineral rights holder has to negotiate a compensation agreement with you.
Keep in mind that you may also retain ownership of what’s called the “pore space of formation” depending upon the state.
In short, this means you own the rock where the oil and gas are stored…even if you don’t own the oil or gas itself.
There are states (like Texas) where this concept becomes crucial when you make an agreement about the storage or disposal of natural gases or fluids because it will ultimately benefit you (the storage owner).
However, you are still in much better position if you own both rights.
Here are examples of surface damage clauses that you may add to a lease if they are applicable to your situation.
No surface operations:
Sometimes a surface rights owner is able to restrict certain operations on his or her property.
For example, no wells, no pipelines, no roads, no seismic activity, etc.
However, these clauses cannot be used in every situation and will depend on who the leasee is and what their needs are.
If you’re interested in a clause like this, then it would be best to work with your landman or leasing agent to determine what is feasible.
Surface damage payment:
If the land is used by the surface rights owner for timber, crops, pasture, etc. then the leasee will compensate the surface rights owner for altered productive capacity.
This is often seen for larger tracts of land.
The surface rights owner and lease will need to agree on the location of the drill sites along with access roads, pipeline easements, etc.
This can be more difficult on smaller tracts of land because leasees often make their selections based on recommendations from geologists.
This clause is typically intended to protect the surface rights owner and his or her water.
Because water is used for drilling and for the production of oil and gas, it can be affected by the extraction process.
As a result, oil and gas companies will often test the groundwater before and after a well is drilled.
If the water is affected, then efforts will be made to correct the problems.
In a clause like this, it states that the oil and gas company will agree to restore the land to its original condition to the best of their ability.
We suggest taking before/after pictures to ensure this is done and to minimize problems.
No drilling within X feet:
This is largely similar to the location approval clause.
If the surface rights owner does not want a well, pipeline, road, or another mineral-related facility placed within a certain distance of one of their fixtures then they may invoke this clause.
5. You may be able to limit surface operations as the surface rights holder
As you read above, there are certain clauses that you can have added to a surface damage agreement that limit the surface operations that are permitted.
However, these are often situation-dependent, and aren’t always feasible for your specific circumstances.
In addition, these clauses often come into play only when you own both the surface and the mineral rights unless the oil and gas company voluntarily agrees to a contract with you as the surface rights holder only.
If you’re curious about whether or not you’re able to limit the surface operations of your land, then you’ll want to talk to a local attorney in your area who has experience on the matter.
It is just important to remember that those who have mineral rights do have the right to come onto your land and extract that mineral within the surface rights zone.
They legally own that mineral and the right to extract it by disrupting the surface of your land.
If this makes you uncomfortable, or you don’t like not having control over the surface AND mineral rights, then it may be worth reevaluating the land purchase altogether.
6. You can also lease the mineral rights (rather than selling)
Leasing your mineral rights is another important factor to consider.
Not everyone wants to actively utilize their mineral rights.
They know they could be making more money, and they know that those resources could be used.
However, the thought of actually going through the process of extracting them is…well, painful.
Yet, they also don’t want to give up their mineral rights forever because of all the challenges that come with severing mineral rights with surface rights.
Once you do it, it’s done, and it can be difficult to ever get them back.
Fortunately, there’s a solution.
You can lease the mineral rights to an oil, gas, or mining company in order to obtain a portion of the process.
You could also sell mineral royalties as a way to make some money while also retaining control over where the surface extractive activities take place.
Both of these options give you more control and also help you retain your rights.
7. Understand how mineral rights will impact your property taxes
Did you know that mineral rights can have an impact on your property taxes?
Depending on the state, you may be taxed differently depending on your rights.
For instance, in Texas, mineral rights holders can be taxed on the value of minerals that are extracted from the land.
You may owe federal, state, and county taxes.
Additionally, surface rights owners may have to pay taxes on any royalties that they received from the sale of minerals.
Their property taxes may also be impacted by any damage done to the land by the mineral rights owner.
Because this can change year to year, it’s important to be informed about how exploration and extraction will change your taxes and what your local and state tax regulations are.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.
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