Split Estates: The Impact of Mineral Rights on Property Values and Use

The Big Picture: Do you know what you really own?

Reprinted with permission.  Authored by John Childs and Joshua Cook

A basic understanding of mineral rights can be important to evaluating your property. One common source of confusion when buyers or landowners contemplate value is the concept of the split estate.   “Split Estate” refers to the separation of surface and mineral ownership, whereby two or more individuals own separate rights in the same land. Split estates are quite common throughout the American West, and many landowners do not even realize that their homes, businesses, or ranches are subject to the mineral rights of third parties. Understanding the relative rights of split owners, knowing where mineral ownership may be uncovered, and understanding how to investigate the likelihood of mineral development can help landowners negotiate risks and properly assess land values.

Split estates come in several forms. With regard to private lands, split estates commonly result from a a prior owner’s reservation of mineral interests or prior transfer of rights to a third party. Such transfers or reservations occur in deeds, leases, royalty carve-outs, assignments, or other documentation throughout the chain of title. These can generally be found at the office of the local county clerk and recorder. While surface ownership may usually be verified by simply looking up tax records or visiting the possessor of the property, determinations of mineral ownership require a much deeper investigation. It should also be noted that under most state laws the mineral estate is considered dominant over the surface estate, which means that once a mining project or oil and gas operation is properly permitted, the rights of the mineral owner may take precedence over the surface owner’s operations or use of that land. The rights of private surface owners relative to those of mineral and royalty holders has been a topic of much discussion and litigation over the years.

Another form of split estate ownership occurs when minerals have been retained by the federal government. Many lands in western states were previously transferred into private ownership through patents. These patents were issued under congressional acts like the Stock-Raising Homestead Act of 1916. Some of these historic laws and patents reserved mineral rights to the federal government. As a result, Stock-Raising Homestead Act lands, for example, are subject to the location of mining claims by third parties. These lands may also be subject to the possibility of leases if the government grants leasehold rights to third parties. Determining whether your property was patented under the Stock-Raising Homestead Act, or some other law whereby the federal government reserved mineral rights, would be advisable prior to committing substantial investment in surface operations. The Stock-Raising Homestead Act provides specific protections to surface owners, but those who are unaware of these provisions may find themselves at a disadvantage in the event of mineral entry or development. Master title plats and federal patents can reveal whether the federal government holds mineral rights to your particular piece of property. These may be obtained from the Bureau of Land Management for review.

As a general rule, title policies and commitments from title insurance companies do not insure surface owners against possible mineral development. Some title companies are still willing to run mineral ownership reports which is one way of finding out who owns the mineral estate. However, these reports come with no guarantees and virtually all title companies specifically list mineral ownership and mineral rights as an exclusion to their insurance coverage. Another way to determine mineral title and evaluate ownership risks would be to hire a landman or a title lawyer who can assist with a review of public title records. Title opinions issued by a law firm are supported by that firm’s malpractice insurance, and landmen often have extensive experience reviewing and interpreting mineral ownership issues in the county records. Their reports are usually quite comprehensive and dependable.

One way to evaluate your property and understand the possibility of mineral development is to retain the services of a geologist, mining engineer or other mineral resource specialist. These professionals, trained in geologic mapping and mineral identification, can evaluate your land to identify likely mineral deposits beneath the surface and the possibility of future mineral development.

It is not uncommon, in split estates, for both the surface and mineral owner to fully enjoy their property rights without interference from the other. New technologies and advancements in the mineral extraction industry benefit many who might otherwise be adversely affected. As just one example, most horizontal drilling currently taking place in North Dakota extends up to two miles underground. The result of this development is that the surface lands are rarely disturbed even though petroleum products are being drained from beneath the surface. Similar types of accommodations are often made by mining companies. Knowing that these accommodations exist is helpful when a landowner is approached by a developer of the mineral estate.

Split Estates Image

It should also be noted that just because lands were once mined or disturbed by mineral operations does not mean those lands are useless. Strict reclamation and permitting requirements imposed by both state and federal governments require mineral developers to fully restore lands to their original condition. In some respects, surface owners may also have the opportunity to participate directly in this reclamation process. Depending on the natural state of the land, and commodity mined, it is possible to fully mine a valuable deposit and subsequently develop other valuable resources within the mined area. An example where this has occurred is Lake Oswego, Oregon where a former iron mine was transformed into an area of high-value real estate. Other examples include the Butchart Gardens in Victoria, British Columbia and the Quarry Amphitheater on the campus of the University of California, at Santa Cruz, both of which were originally limestone quarries.

In short, most lands throughout the West consist of split estates. Prudent buyers and owners today begin with an assessment of whether there is potential for mineral development in the area of the property. If there is that potential, then one needs to undertake the analysis outlined above to determine mineral ownership and what the impacts might be. The existence of a mineral deposit beneath your property does not necessarily mean your land cannot be fully enjoyed. It is important to keep in mind that mineral developers are generally required by law to pay damages, and these can be significant. Also useful roads and water development can be beneficial to ongoing agricultural operations.

Note:  This article is reprinted by permission of the authors and Hall and Hall.  It originally appeared in the Hall and Hall’s Spring Summer 2017  Newsletter entitled From Our Corner.  

About GRS Group

GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions. 

Through the company’s proprietary management process, Global Services Connection, GRS Group delivers an integrated suite of services including Financial Advisory, Transaction Management, Assessment and Title Insurance.  We provide a single point of contact, capable of leveraging the GRS Group portfolio of companies, and delivering customized solutions to assist our clients in achieving their investment goals.

Comments are closed.