real estate

Secure mineral rights before selling home

Steve McLindenq_v2.gifDear Steve,
I plan to sell my home in Los Angeles soon. I am receiving a monthly royalty check from an oil company for my mineral rights. How can I retain those rights and still sell my home?
-- John

a_v2.gifDear John,
You can retain your mineral rights simply by putting an exception in your sales contract, provided that the buyer agrees to it, of course. If you sell your house with no such legal clarification, then those mineral rights automatically transfer to the buyer. As you've no doubt found, ownership of these rights can add up to thousands of dollars.

But also consider that some buyers may be skittish about purchasing a property where someone else retains an interest. When buyers read in the contract that the owner wants to maintain mineral rights, they will often insist those rights be conveyed with the house, especially in this buyer's market. To get around this scenario, some sellers will convey those rights to another party, usually a relative, before putting their home up for sale so they can honestly tell the seller, "It's out of my hands."

As a concession, you could offer the buyer the typically less lucrative "surface rights," which cover the exterior and upper boundary of the property only, and not the "subsurface rights" that cover the down-below goodies such as oil and natural gas. If pressed, you can always offer a percentage of your subsurface rights.

There are a few other mineral-rights twists to consider. Some short-sellers who are attempting a sale for less than the debt on their homes are finding they don't have much negotiation leverage when trying to retain mineral rights. Depending on the nature of your agreement, the issues of ingress and egress, indemnity, and exploration and drilling rights on the property may come into play. If there's big money involved or any unusual complications, get a real estate lawyer.

More and more, discoveries of giant natural gas fields and other mineral deposits in urban areas, coupled with new technologies to extract them, are leading to increased drilling and the establishment of multiple mineral leases with homeowners and homeowner groups. And yes, there is a temporary depression in natural gas and oil prices, but those prices will certainly rise again, and the mineral-lease machine will no doubt crank back up with them.

I strongly suggest that all potential home sellers secure their mineral rights as they put their homes on the market, even if valuable natural resources haven't been discovered yet.

Good luck.

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