All entries for June 2020

Subsurface Rights - I Drink Your Milkshake?


Authored By: Ryan A. Featherstone, Esq. 

Most real estate professionals have had a transaction affected by these rights in some capacity, commonly referred to as oil, gas and mineral rights (“OGM”).  Florida courts have held that these rights are superior to the rights of the surface owner.  Some national developers/builders include the OGM reservation in their deeds, as a matter of course.  In certain areas of the state, OGM rights were reserved by and remain with the original families that developed the area, e.g. Barron Collier (Lee and Collier counties). These rights will be exceptions to title insurance coverage, and losses incurred as a result of enforcement of these rights are not covered by the standard title policies.  Coverage can sometimes be available by endorsement to the policy, but only if the right of entry is not reserved.  

Historically, the issue comes up from land that was at one time conveyed by the state, most commonly by the Trustees of the Internal Improvement Fund (“TIIF”).  Much of the state’s land came to it from the Depression, when owners had trouble paying their real estate taxes and thus lost their property to the state. It is noteworthy that when state and local government entities convey title into private hands, the OGM reservations are automatic, even if not specified in the deeds.  However, “since 1986, the rights of entry that accompany the OGM reservations were automatically lifted from both TIIF and State Board of Education deeds as to parcels of property that are, or ever have been, a contiguous tract of less than 20 acres in the aggregate under one ownership.”  Fund Concept Article Nov. 2019. This release of the right of entry is codified in Florida Statutes Section 270.11.

But what does this all really mean?  And how could it impact your future deals? 

For the most part, mortgage lenders, buyers, and title insurers focus on the right of entry relative to the OGM rights.  If the owner/holder of the OGM rights also holds a right of entry onto the land, obviously this could be significantly disruptive and potentially damaging to the land and property, not to mention its value and marketability.  If the right of entry has been released, then most of the time, the lenders, buyers and title insurers feel confident in moving forward without having to secure a release of the OGM rights, which may be impossible to get anyway.  The Florida form contracts state that OGM rights that include the right of entry are a title defect that has to be cured by the seller. Of course, this requires a title objection from the Buyer, so as a relevant aside, this is yet another reason why you should always close deals with an attorney and not a non-attorney title company.  There are several approaches and/or analyses that can be used to try and eliminate the right of entry depending on the facts, e.g. the Marketable Record Title Act, Ch. 712, Florida Statutes (MRTA) or requested releases from TIIF or the Department of Environmental Protection.

Now, is it possible there is a situation where the right of entry is released yet a neighboring property is used to excavate the subsurface materials a la Daniel Day Lewis in the movie “There Will Be Blood”?  Yes, of course, especially with today’s drilling technology.  But from a practical standpoint, the risk is fairly low, again, making the buyer, lender and title insurer comfortable with moving forward without the concern of damage to the property or negative impact on its marketability.  Additionally, zoning regulations may prevent extraction; however zoning laws can change so they should not be solely relied upon to resolve the issue. 

In a perfect world, OGM rights would be released on every property for which they are reserved.  But there is no guarantee the owner/holder would agree to the release (at a minimum without compensation) and in many cases it may be extremely difficult if not impossible to locate the owner/holder or heirs, resulting in expensive “quiet title” litigation or otherwise.  For residential properties, such lengths are usually not necessary as long as the right of entry has been released by instrument or by law.  However, for larger commercial projects or large acreage deals, the reservation itself could be concerning, requiring extra effort and expense to have the OGM rights released or sold prior to purchase or development.  And on those deals, where customized purchase and sale contracts are common, extra attention should be paid to ensure that the reservation of OGM rights (or at a minimum the right of entry) is in fact a title defect protecting the buyer’s deposit should they not be capable of being released.

Whenever working on a transaction where OGM rights have been reserved, it is bets to consult a licensed Florida real estate attorney for an analysis of the potential impacts this may have on your transaction to ensure your client is protected.

This blog is intended for informational purposes only and it is not intended to be, nor should it be construed as, legal advice or legal opinion.  The reader should not consider this information to be an invitation to an attorney/client relationship, should not rely on information presented here for any purpose, and should always seek the legal advice of counsel in the appropriate jurisdiction.