I'm reading an Addendum to the Purchase and Sale Agreement for a wholesale deal and I came across this item in the contract:
Mineral Rights Disclosure: Seller reserves all existing mineral rights to the Property. However, Seller waives and conveys to Buyer the right of ingress and egress to and from the surface of the Property relating to the portion of the mineral estate owned by Seller or other entity(s).
1. When you guys purchase properties, do you typically waive the Mineral Rights in your contracts? Is this a typical clause that wholesalers will include in their Addendums?
2. Do you guys typically hire a real estate attorney before purchasing a deal either through a wholesaler, or through any other means?
You should always consult an attorney if you are unsure about a legal term but yes i do see this commonly in Austin sales contract
@Neil Narayan thanks for the insight!
Is it commonly in the sales contract because of the wholesaler, or the seller requesting it?
Are mineral rights a typical negotiating point for sale contracts?
It's pretty market/common enough to exclude mineral rights. Some wholesalers take the view of why not, it's a free option in case it becomes economical to drill in Houston (not even sure if there is anything to drill here, but again free option).
Alex....you should have a contract expert on your team...or two or three if you are not an expert on the contracts. That could be a realtor or could be an attorney. Mineral just like other items in the contract is a negotiable item....one trick though is you may not know and the seller may not know if they own the minerals, so you could be negotiating nothing. It is also interesting to see this in Travis county to me which has not traditionally been a hotbed of oil and gas activity. I would expect to see these more in hot oil and gas areas. For example in DFW area, we rarely see anyone negotiate these mineral reservations in Dallas County where there traditionally has not been drilling or production activity for the most part. However in Denton and Tarrant County it is not uncommon to see these.
I think you also have to think about picking your battles. If you are trying to buy a wholesale deal where there is competition and you plan on flipping it and you are talking about small 1/10 or 1/20 acre lot sizes...you do what you have to do to get the deal....or negotiate that out....and move on.
If you are talking about acreage deals in producing areas...then maybe you negotiate harder.
Mineral rights in Texas are a big deal, so pulling out one paragraph out of an addendum is going to be impossible to talk about. For most lots in developed areas, the mineral rights have been severed from the surface rights long ago, but you need to have a landman take a close look at who hold the mineral interests. For recently developed or rural locations, there may be a lease in place for production.
But to answer your question, I would *never* give up mineral rights without getting paid well for them. If there's been data taken on reserves under the land, I would want a copy to do a valuation. If there is an O/G lease in place, I'd want a copy of that, too.
The odd part of what you posted is, surface rights and mineral rights are two separate types of interests. Mineral rights don't include ingress/egress. That belongs to the surface and typically it is the surface that gives an easement to the mineral rights holders for ingress/egress to extract the minerals. This is done by operation of law, so not mentioned anywhere expressly.
I think for me as a buy-and-hold investor, it doesn't sit with me well that the wholesaler would do a double-close deal, and keep the Mineral Rights.
If I was flipping the property, I probably wouldn't care.