Should You Buy A Property With Leased Mineral Rights?
If you're browsing for your family's next home and live in one of several areas of the U.S. known for rich mineral deposits -- crude, coal, copper, or natural gas -- you may find that certain properties in your search include a disclaimer that they are sold subject to an oil or gas lease. These leases can provide regular income to the property owner (often used to help pay down a mortgage) by giving away the right to mine the property for valuable minerals beneath. However, this isn't always easy money, and in some cases, purchasing a home with an oil or gas lease can lead to title issues or require you to live with an excavating operation just outside your window. Read on to learn more about how mineral leases work, as well as some factors you'll want to take into account when determining a fair offer to make for a property subject to an existing mineral lease.
What is a mineral lease?
Mineral leases allow a non-property owner to gain legal ownership of certain minerals or deposits located beneath the surface of the ground. When it comes to land, there are two separate types of rights -- surface rights and mineral rights. Many homeowners have both surface and mineral rights to their property, meaning that they own and control the surface of the ground and the minerals beneath.
In other cases, the surface rights may be severed from the mineral rights, allowing the homeowner to still own and control the surface of his or her property, but transmitting temporary ownership of the minerals beneath the ground's surface to a third party through a lease arrangement. This ownership will last through the life of the lease, and if the homeowner fails to renew the lease, these mineral rights will revert back to the homeowner so that he or she again controls both the property surface and the minerals themselves. (However, some leases are written with exceptionally long terms that can cover the lifespans of several subsequent homeowners, and which may be difficult to change or cancel before the term is up).
Although there are laws that prevent predatory mineral leases, this doesn't necessarily mean you'll be offered fair market value for the minerals beneath your property. The mining company that leases these rights must be able to make enough to cover the costs of mining and any other expenses, plus profit. This can mean that the amount you'll be offered seems low when taking into account the sales price of the minerals, oil, or natural gas that flows beneath your property.
What should you consider when purchasing a home subject to a mineral lease?
Although purchasing a home that is already subject to a mineral lease can be a great way to help you pay off your mortgage sooner, there are some factors you'll want to take into consideration when determining whether this is a wise financial investment.
- How long is the lease term?
A shorter lease may offer you more flexibility if you'd like the property to not be subject to a mineral lease upon later sale. A lengthy lease may also be harder to extricate yourself from after you've purchased the property.
- Is the property's title clear?
Mineral leases can often get messy when it comes to title paperwork. In some cases, these leases may not be recorded; in others, they may be recorded incorrectly as a purchase, rather than a lease. You'll want to conduct a title search before making an offer to ensure that the property is as described.
- Is a mining date projected?
In many cases, mineral rights can be leased for years or even decades before ground is ever broken -- if ground is broken. Because mining projects can often take years to get off the ground, and can require many layers of government approval, you should be able to ascertain whether there are any projects on the horizon before purchasing. To learn more about your rights as a homeowner of property subject to leased mineral rights, consider talking to an oil and gas lawyer.
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