Mineral rights: hidden dangers lurking below the surface
When purchasing or selling a piece of property, there’s a tendency to think only in terms of what is going on at the surface.
This seems reasonable since most use of property, whether personal or for business, occurs at ground level. But unseen dangers lurk beneath the surface of any real estate.
For many pieces of property, the surface and mineral interests are owned by the same person or entity. However, it is not uncommon in Michigan for the previous property owner to have either reserved an interest in the mineral rights or transferred them to someone else.
These mineral interests go far back — long before you or your seller or even their seller owned the property.
Although ignorance may be bliss, it is important to understand some basic principles of mineral rights before you or your business make a significant investment in property.
If the mineral rights have been severed from the surface rights, the mineral owner has the right to remove the minerals. The document that transferred or leased the mineral rights often will spell out what rights the mineral owner has to remove the minerals.
Unless the document restricts the mineral owner’s rights to use the surface, a mineral owner is entitled to use of the surface to extract the minerals.
All of this sounds logical and reasonable but it can cause significant problems depending on the type of property.
If you own a piece of undeveloped property in a sparsely populated area, any right a mineral owner has to remove the minerals may not be of much concern. However, the reservation of mineral rights may have considerable impact in other scenarios.
For example, you may have purchased undeveloped property with the intention of building a vacation home, only to find out mineral exploration is occurring under your feet. If your property is improved or if you are contemplating improvements, the rights of the mineral owner can cause unexpected and unwanted complications and headaches.
As the surface owner, you may not deprive the mineral owner of “all economically viable use of the property.” Conversely, if you own mineral rights in property but not the surface rights, you should be sure you have access to the minerals, otherwise they may in reality have little value.
Surface use agreements are key
So what does all of this mean and how is it typically handled?
First and foremost, if you are considering acquiring property — even if you are not concerned with owning the minerals for use or exploration — you should take the time to figure out what is going on.
If the investment in the property is significant enough, it is more than worth the time and money to have the title to the property reviewed for any severed mineral rights.
Second, if you are interested in property where the mineral rights have been severed, you can consider putting together a surface use agreement. Typically, these agreements will attempt to clarify the rights of the surface and mineral owners in order to avoid conflict.
A surface use agreement can be as simple or detailed as the parties want it to be, usually depending on the property and money involved. At the very least, the agreement will explain what rights the mineral owner has to access the minerals, such as the location of any extractions and any timeframes in which to work.
Conversely, the agreement may explain what a surface owner can and cannot do with the surface in order to avoid obstructing the mineral owner’s use.
A typical surface use agreement will also explain when parties are liable — meaning, when they are legally responsible for damages or harm to the other — and for what actions. More detailed agreements may also spell out if and where roads will be located, what equipment the mineral owner may bring on to the property, how and when the mineral owner should restore the surface when done and other similar details.
When it comes to mineral rights, a little time and money upfront could save significant time and money on the back end.
Patrick M. Gunton is a real estate attorney at Warner Norcross & Judd LLP. He helps clients buy and sell retail and commercial property and always recommends looking below the surface. He can be reached at email@example.com.