Options for Commercial Property Owners When Handling Oil, Gas & Mineral Rights

Oil, gas, and mineral (OGM) rights are not uncommon, especially in Collier County and certain areas of Lee County. Unfortunately, outdated OGM leases and rights reservations often cause headaches for buyers when these issues show up on title. Below are some tips for combating OGM rights issues on your property.

BEFORE THE CONTRACT IS SIGNED

Sometimes, if a seller knows there may be OGM rights on the property, there will be provisions in the contract to account for those rights. Be wary of provisions that limit seller’s obligation to cure issues related to OGM rights. For example, some contracts may provide that seller has an obligation to cure a title defect related to OGM rights only if there is a right of entry. Even if there is no right of entry, an OGM right still may create a cloud on title that would make buyers uncomfortable.

If you cannot reach an agreement for seller to resolve the OGM issues, make sure to have a long due diligence period and try to tackle OGM issues early. OGM issues are complex; removing them from title can be cumbersome.

AFTER THE CONTRACT IS SIGNED

Should you not become aware of an OGM issue until after the contract has been signed, carefully evaluate the instrument creating the OGM right. Often, the instrument will have provisions that terminate the OGM rights if commencement of extraction operations does not occur within a certain amount of time. The instruments creating the OGM rights are sometimes outdated and illegible, so it may be prudent to ask the title company or the clerk of courts for a more legible copy to review.

Work closely with the title company, specifically underwriting counsel, to come up with solutions on how to effectively remove the OGM rights from title. Depending on the language of the instrument creating the OGM rights, underwriting counsel may provide several alternatives for removing the OGM rights from title. Some solutions may be more feasible than others. For example, feasibility may depend on whether the title company is requesting a simple affidavit from the seller or an outright termination of the instrument creating the OGM right.

If an affidavit or termination is not feasible, review the land development regulations of the county or municipality for restrictions on OGM drilling and extraction. Counties and municipalities usually have restrictions on whether drilling and extraction can occur in specific zoning districts. If an OGM right cannot be removed from title, then evaluating the likelihood that an OGM right can be exercised on the property is an important part of determining whether the investment in developing the property is worth the risk. On this note, a buyer may wish to obtain a zoning verification letter (ZVL) from the county or municipality where the property is located. The ZVL can provide the buyer with an overview of whether drilling and extraction are permitted on the property.

PRACTICE POINTER

When it comes to OGM rights, the title issues created may make a buyer uneasy, especially if that buyer plans to re-sell the property. That’s why it’s highly advisable for buyers to consult with an experienced land use or real estate attorney to help with mitigating any potential OGM issues that may arise.

(Kaylee Tuck is an associate in the real estate and land use & environmental law departments at Henderson, Franklin, Starnes & Holt, P.A., in the firm’s Fort Myers office. Her practice focuses on commercial and residential sales and leases, development, land use and survey matters. Tuck may be contacted at 239-344-1164 or by email at kaylee. tuck@henlaw.com.)