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RETAINING MINERAL RIGHTS WHEN SELLING PROPERTIES

Last Updated on July 20, 2023, by Ryan Moore 20 mins well spent

Contents hide
1. What does it mean to sell a property and retain mineral rights?
2. Can you sell your property and retain mineral rights?
3. How do you retain mineral rights?
4. Are there any downsides when retaining mineral rights?

Many mineral resources can be found beneath the earth’s surface. As a result, if
you happen to stumble on oil, natural gas, copper, or zinc, among others – on
your surface land, don’t be too excited about the prospect of making a profit by
selling them. The practice of a land owner retaining mineral rights when selling
property is common in Texas, California, New Mexico, and many other states.

This is because there are distinct differences between surface and mineral
rights. Purchasing a tract of land gives you the right over everything above the
ground – also known as surface rights. On the other hand, before you can engage
in mineral exploration or use any minerals found beneath your property, you must
own the mineral rights to them.

It must be noted that a landowner can retain mineral rights and surface rights.
However, in many cases, the mineral estate can be independent of the surface
estate (called severing). This separate ownership is an example of a split
estate (severed mineral rights).

Mineral rights holders must acquaint themselves with some important details,
including the benefits of retaining their mineral rights. This guide explores
what happens when a seller wants to retain mineral rights but sell the surface
property. Keep on reading!


WHAT DOES IT MEAN TO SELL A PROPERTY AND RETAIN MINERAL RIGHTS?



A seller who wishes to sell a parcel of land can decide to limit the access of
the new owner to everything above the surface, which is covered by the surface
rights. As a result, the seller will still have rights over any minerals beneath
the land.

This implies that the right to exploit any minerals remains with the seller.
When a seller owns the mineral rights, any contract must show a clause that
blatantly reveals the ownership of the mineral rights for the specific property.
Otherwise, the rights will be owned by the new buyer.


CAN YOU SELL YOUR PROPERTY AND RETAIN MINERAL RIGHTS?

Yes, you can sell your land or property and retain the mineral rights. As
mentioned earlier, it is possible to sever the mineral estate from the surface
estate as part of the selling process. For this reason, a surface rights owner
can choose to sell land but retain the ability to explore or exploit the
minerals beneath the land or property.

Most sellers retain ownership of any potentially profitable mineral rights, such
as oil or gas. They can achieve this in three different ways:

 1. Sell the rights to another entity.
 2. Participate in the mining/drilling activity or develop the resources with
    another entity (e.g., an oil and gas company). They will share a portion of
    the drilling costs and the profits of developing the resources.
 3. Enter an oil and gas lease agreement. A mineral owner can decide to lease
    the rights to a gas or oil company. In this case, the contract gives the oil
    and gas company the sole right to use the minerals for a specific period in
    exchange for royalties. When the lease expires, the rights revert to the
    original owner. The same mineral rights cannot be leased to another
    interested entity during the lease period.


HOW DO YOU RETAIN MINERAL RIGHTS?



Most property owners wonder if it is possible – and how – to retain their
mineral ownership when they wish to sell their property. However, before any
rights sale or retention can be done, a landowner must ensure they own the
mineral rights to the property. If so, a landowner must become acquainted with
the different ways to retain their mineral rights. The following processes are
common:


CONVEY THE MINERAL RIGHTS

As mentioned earlier, surface owners can own surface and mineral rights to a
piece of land. They may wish to sell land but retain the mineral rights. This is
called a split estate. Conveying only valuable mineral rights is the easiest
route. Often, this is one of the first options sellers explore.

If you find a buyer that only wants to acquire the surface property rights but
not the mineral rights, you can retain the latter. However, it must be clearly
stated in the legal contract that the mineral rights belong to you. Otherwise,
the mineral rights are transferred to the new buyer upon transfer.

Besides this, you can simply transfer the mineral deeds before you put the
property up for sale. In most cases, this often makes the transaction smoother.
After all, the new buyer is not purchasing land that has an exclusion clause.
However, unless done legally, it might not be the best path to follow.

Furthermore, to retain the rights over minerals, it can be a wise option to
employ the services of an attorney to manage the transfer of specific rights
during the sale of the land. By simply conveying the mineral rights, an owner
can sell property while retaining the mineral rights.

WHAT IS A MINERAL RESERVATION DEED?

A mineral reservation deed is a legal document used in real estate transactions
that allows an owner to retain rights to any minerals found on their property.
These deeds often come into play with properties containing natural resources
like oil, natural gas, or coal.

The owner may choose to develop the mineral reserves themselves or lease them
out to a third party for extraction.

In some cases, these deeds can also be used to limit development on the property
to protect sensitive geological features.

Potential buyers and sellers must fully understand the terms of a mineral
reservation deed before entering into any agreements. There may be a
considerable impact on the value and use of the property.

WHAT IS A MINERAL DEED?

A mineral deed is a document that transfers ownership rights to minerals located
below the surface of a property. This can include valuable materials such as
coal, natural gas, and oil.

A mineral deed typically specifies the exact location and depth of the minerals
and any conditions or limitations on extracting them. Individuals or companies
interested in extracting minerals must ensure they have proper ownership rights
before proceeding with extraction.

Without a valid mineral deed, they may face legal repercussions for trespassing
or theft of property. Mineral deeds also play a crucial role in establishing
fair financial compensation for mineral rights owners when their resources are
extracted. Overall, mineral deeds serve as protection for both individuals and
companies involved in extracting minerals from properties.


SELL ONLY SURFACE RIGHTS

When you have the rights to everything above and below the land, then you can
decide to sell only the surface rights. These can include buildings, trees,
rocks, and more. While surface rights might not be as profitable as selling your
mineral rights, you can still make a significant amount of money by selling
them.

In doing this, you sever the mineral rights from the surface rights. Severed
rights imply that even though the right to the property has been sold to someone
else, you retain the right to explore, sell, or lease the minerals beneath the
land surface.


TRANSFER THE MINERAL RIGHTS TO A THIRD PARTY



While this method can be a bit sneaky, some buyers might simply prefer to
transfer their rights to another party. This ensures that they can eliminate the
mineral rights entirely from the deal.


ARE THERE ANY DOWNSIDES WHEN RETAINING MINERAL RIGHTS?

When you are the owner of mineral and surface rights to a particular parcel of
land, many parties may be interested in purchasing the surface rights, mineral
rights, or both.

So it is only natural to consider the possible advantages and downsides of
selling or retaining your mineral rights.

As a surface and mineral rights owner, be aware that some prospective buyers may
not fancy purchasing land with its minerals owned or maintained by another
party. For many buyers, this can seem like an invasion of privacy.

The implication is a reduced value for the specific piece of land. It is not
uncommon to find people unwilling to agree to the retainment of mineral rights.

In such cases, selling a property might prove more difficult if you have severed
mineral rights.

However, some sellers might prefer to transfer the mineral rights to their
relatives before selling the piece of land. As a result, only the surface rights
can be negotiated, and the mineral rights will be retained. Besides this, the
seller might choose to sell only a part of the mineral rights.


CONCLUSION



Having the right to explore or extract minerals can be very valuable. Mineral
rights ownership is different from owning surface rights to land.

As a mineral and surface owner, selling only the land while retaining the
mineral rights is becoming a popular option. Mineral owners can keep making
money from the minerals even though the rights to the surface use of the land
belong to someone else. This is usually covered by royalty deeds.

Many people choose to lease their rights to another party in exchange for
royalty payments. Or they might participate in the production of the minerals in
question.

If you wish to sell a property while retaining the mineral rights, you must know
how to go about it. While many advantages are associated with a landowner
retaining mineral rights after a property sale, some drawbacks cannot be
ignored.

In most cases, it makes sense to contact expert legal services experienced in
mineral law. They will be able to provide you with the necessary details to
conduct due diligence before making an informed decision.


RELATED ARTICLES

What are Mineral Rights and How Do They Work? – Different Types of Ownerships
and Trading in 2023 Oil And Gas Law: Oil and Gas Production Laws in The United
States 11 Crucial Things to Remmeber When Buying Land Without Mineral Rights


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Δ

Ryan C. Moore
Ryan is the Founder and CEO of Pheasant Energy, as well as Co-Founder of
Pheasant Resources. He formerly served as Chief Operating Officer for Moore
Minerals, LC, a family office and mineral and royalty acquisition firm. U.S. He
currently serves on the board for EE Systems, Inc., a gas compression
manufacturer as well as ZeoGas, LLC, a global methanol project, both based out
of Houston. Texas.


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