Most landowners assume when they buy real estate, it includes the subsurface oil, gas and other minerals. But is that really true?
In recent years, Michigan's oil, gas and mining industries have rebounded. Higher prices and advanced mining methods have once again put our mineral resources in play. Currently, oil, gas, iron, nickel, copper, sand, gravel, limestone, potash and salt mining operations are under development or open for business in Michigan. And it's becoming common for exploration companies to contact landowners to ask for a lease to permit exploration and mining of oil, gas or other minerals.
Like most states, Michigan permits landowners to sever ownership of the subsurface minerals from ownership of the land's surface. This is done in one of two ways — the landowner gives a mineral deed just for the minerals, retaining title to the surface, or gives a deed for the surface, reserving ownership of the minerals. And later buyers of the surface may have no idea whether the minerals were severed before they received title.
The deed you receive when you buy land may say nothing about oil, gas or other minerals. Often a deed is silent, and is assumed to transfer both surface and subsurface rights. It may contain a modest “heads up,” stating that the land is transferred “subject to easements, restrictions and reservations of record” (emphasis added). However, it will not say, “Someone else owns the minerals and may show up tomorrow to start mining on your property, and there's not much you can do about it.”
Today, title insurance policies often except from coverage title to oil, gas and other mineral interests. Even if they don't contain such an explicit exception, a title company typically only searches the chain of title from a deed of record for at least 40 years. That's all they need search to confirm insurable title to the surface.
In fact, the only way you can tell for sure whether you will receive good title to some or all of the minerals is to do a detailed review of the entire chain of title to the land, since the first private owner 150 or more years ago. Before the advent of title insurance, abstracts of title were commonly prepared to check title. Compared to the cost of purchasing a title policy, this can be costly. You must hire an abstractor to prepare a detailed search, and then an attorney to review and provide an opinion on the title disclosed by the search.
So what should you do?
- If your title commitment does disclose that someone else owns or leases the oil, gas or other minerals, then purchase an endorsement to your title insurance coverage protecting against loss from surface disturbance resulting from mining operations.
- When buying land, see what the seller can tell you about their ownership of the oil, gas and other minerals. Maybe they leased them in the past, and a mining company checked they owned them.
- If the seller has owned the land for many years, ask if they have an existing title abstract they can give you for your attorney's review. An abstract only has to be prepared once. Using an existing abstract saves time and money.
- If ownership of the oil, gas and other minerals is important to you, then have an abstract prepared and title reviewed and checked before you close the purchase.
- If asked to lease oil, gas or other minerals, make sure the lease makes clear you aren't promising the lessee you have good title. That could obligate you to spend thousands of dollars in attorney's fees to sue to make the title good. Instead, the lease should simply acknowledge that if it turns out you don't have good title, then you won't receive any mineral royalties.
Bill Hall is a partner at Warner Norcross & Judd LLP with more than 30 years of experience as a commercial real estate attorney. He can be reached at firstname.lastname@example.org.