Land Q&A: Buying Land When Mineral Rights Don’t Convey

Editor’s Note: This is the tenth in a question-and-answer series with land real estate professionals — land agents, mortgage brokers, auctioneers, attorneys, timberland professionals and more. There’s a lot of information about the national real estate market out there, but it’s tough to find answers to your specific land real estate questions — until now. LANDTHINK believes that a lot of the stress of buying, selling, and owning land can be reduced or eliminated with some simple information from some of the best in the land industry.

Landbuyer Question:

I’m moving to a state where mineral rights are a big deal. I’ve found a 110 acre tract of land that I want to buy and eventually build a home. The seller doesn’t care about surface rights, but wants to retain the mineral rights. I have not put an offer on it, and I haven’t seen the property in person yet – only the pictures. Should this be a “deal breaker”? Would you recommend passing on any parcel of land if the mineral rights don’t convey? I would appreciate any suggestions that would help me make an informed decision before purchasing.

Jonathan Goode, Broker and Founding Partner at Farm and Forest Brokers

Thank you for this question. In parts of Alabama, where I practice, there are many different types of minerals, oil, and gas that can be mined or extracted, so the impacts on a property vary significantly. Without knowing the particular details of where you are looking to purchase, here are a few considerations to factor into your land purchase as it pertains to mineral rights and the eventual building of your home. Before getting too deep into the minerals discussion, I would suggest you go look at the land as a practical first step. Pictures are great, and often alluring, but it is hard to get an accurate feel for the topography, surroundings, and general feeling of a place from a listing on a website. If the land grabs your attention, explore the surrounding area a little more carefully to see if mineral exploitation is active and visible. If you still like what you see regarding the property and surrounding area, then give some more time to the minerals question.

In many parts of Alabama, mineral rights were severed from the surface rights as much as a century ago. If ownership of the mineral interest is unclear, the only way to know for sure who owns the mineral rights is to have a minerals abstract done on the property. This typically costs considerably more than simply having “title work” done. An abstractor or landman will go all the way back to the original patent, which is when the property was originally transferred from government ownership to an individual. The minerals abstract should be able to identify who holds the mineral interest of record associated with the property. In this case, if the seller is planning to retain the mineral rights, then here are a few considerations.

1. What minerals or substance could potentially be mined at the site you are looking to purchase? There are some minerals that in order to be extracted, involve impacting large areas of the surface. Some minerals, oil or gas may only need to impact the subsurface. I would try to understand what is sought after in the immediate area, and what methods they use to extract them. Look for signs of active exploration in the area, and ask neighbors about mining nearby. In Alabama, the mineral estate is considered dominant over the surface estate, meaning the mineral owner has certain legal rights to access and use the surface to develop those minerals.. This does not mean that the holder of the minerals has unlimited power over the surface- there are laws and restrictions to how they may use the surface above their mineral interest.
2. Would the owner be willing to convey a fractional interest in the mineral rights to you, so that you have some stake in them as well as the surface rights? If you could get 1/2 or 1/4 of the minerals, that would give you some decision making ability. I don’t provide legal advice, but there are also “Executive Rights” associated with those minerals. Whomever holds the executive rights has the ability to negotiate the minerals leases, terms for mining, and royalty rates. If all the landowner is concerned with is the royalties from the minerals, you might be able to obtain the executive rights which allow you to set the terms the minerals could be extracted, and they would benefit financially.
3. If subsurface mining is done, you will want a geologist and an engineer to review the site to make sure it is suitable for your intended use. The ground needs to be stable, and not susceptible to sinkholes, excessive vibration, or noises that come from such operations. Surface mining operations frequently come with loud noises, heavy truck or rail traffic, dust, smells, and vibrations from blasting and heavy equipment.
4. It is possible that a mining operation might have impacts on surface or ground water. If you are considering well water as your source of potable water for your home, this might be a consideration.
5. Will the owner reduce the price of the land in exchange for the right to retain the mineral interest? You can adjust your offer to reflect your perceived risk to your intended use of the property.

The list above are things I would consider from the outset. As with anything, people have different levels of what they are willing to tolerate. Do your due diligence and determine if the absence of mineral rights is something you can live with. Many of the properties that I have sold have been subject to minerals exclusions. Some states have laws that cause mineral rights to revert back to the surface right owners if there has not been some effort made to explore for or extract minerals in a given time frame. Some of those states call them Dormant Minerals Statutes or Acts, but Alabama does not have such a policy. You could try to negotiate a reversion clause in the contract which allows the landowner 5 to 10 years to explore for minerals, and if they lie dormant, then the mineral rights would revert back to the surface owner.

Mineral exclusions are common in Alabama and do not automatically make a property undesirable. The key is determining the likelihood that mineral development will interfere with your intended use — and adjusting your due diligence and pricing accordingly. Your goal is to make an informed decision as to whether the impacts from that exclusion will still render the property suitable for your intended uses. You should have a reputable real estate agent that can connect you with a good real estate attorney, geologist, and engineer to help you work through your due diligence on a purchase like this. Thank you for a great question!

Do you have a specific land real estate question for one of our professionals? Submit your question and we might choose yours!