Debbie Solano -- ABR, CRS, e-PRO, GRI, SRES

"The lease is available; you can buy the lease."

A REALTOR®-Associate in my company said this today in one of our land and ranch meetings while touting a lovely 269-acre parcel of land which I will be previewing later today.

I thought to myself, "That's pretty cool. Owning the oil & gas lease is the next best thing to owning the minerals."

Then I wondered if she really meant what she said.

Did she understand what she said? Did she mean what she said? Did she even know what she said?

[I kept my mouth shut in the meeting rather than interrupting and going off on a tangent -- since nobody really cared anyway except me (I am one of those about whom it is said, "There's always one in every group.....") However, I couldn't sleep. The distinction is important and I just cannot keep it to myself. I felt a blog coming on, so I got out of bed to write. So here it goes........ ]

When we own land, we don't actually own the land. We own a bundle of rights which includes the use of that land with restrictions.

When a landowner owns land in fee simple, that means he owns the full bundle of rights. Fee simple absolute or simply "fee simple" means that you own everything from the center of the earth up to where the government allows planes to fly.

As an owner, you can lease the entire bundle of rights to another person or you can lease a particular right. Thus you can lease the oil, gas and other minerals, you can lease the grazing rights, you can lease a cottage on the land (or just a room in that cottage), or you can lease hunting rights, etc.

If the mineral rights have been severed from the surface rights (meaning that a previous owner somewhere in the chain of title has retained the oil, gas, and other minerals in a recorded deed), then it is the owner of the mineral estate who has the right to lease the right to drill and produce the oil, gas and other minerals in and under the land. The landowner who only owns the surface cannot lease the minerals as the lessor.

However, the landowner who does not own the minerals can lease the minerals as a lessee. Usually it is someone other than the surface owner who leases the minerals (much to the dismay and sometimes anquish of the surface landowner). This is a pretty cool option.

Now, as someone purchasing a lease, it needs to be understood that a lease can and will expire. You can have a lease for 2 days or even 99 years -- but no more. You cannot own a lease in perpetuity.

Having said that, an oil & gas lease is valid as long as it is in it's primary term, be it 2 days, 3 years, 10 years, etc. This primary term is negotiated by a landman or an oil & gas attorney who is qualified to navigate the ins and out of such leases at the time that the lease is signed and purchased. A lease is a legal document that should be filed at the courthouse to have actual notice announcing to the world that such a lease exists. This is hugely important.

The lease is valid as long as it is in it's primary term or is held by continuous production. Oh, there is the kicker, continuous production. In other words, if you are the leaseholder (the lessee or the assignee), then you had best be drilling or producing oil & gas that makes it clear that you are actually doing something. This is technical and many leaseholders lose their lease after pumping milions of dollars into wells in the hopes of making them profitable, only to lose their investments of time, expense, and effort to someone else who picks up the lease at a later time. Boo hoo, so sorry, good bye.....

Now if the leasholder does not have an operator's license, then he must hire an operator to operate the lease. Only an operator can operate oil & gas wells. Anybody can own the lease, but they have to hire an operator if they themselves are not licensed to operate oil & gas wells. An operator is the only person authorized by the State of Oklahoma to do anything on an oil & gas lease. He must participate in every activity.

An operator can be a company or a person. An operator has a license number. In the eyes of the Oklahoma Corporation Commission Joe Operator is exactly the same as ExxonMobil and are under the same laws, rules, regulations, and restrictions. One operator is a single person and the other operator is a multi-national corporation. When either one comes on your land, they are exactly the same in the eyes of the State of Oklahoma. There is virtually no difference -- they are both operators.

An oil & gas lease can be sold or assigned to another person by means of an assignment or a bill of sale. Both of these should be filed at the courthouse as soon as possible to effect actual notice of assignment of the oil & gas lease. Again, this is hugely important. Race notice literally means that the first person to the courthouse wins. No kidding, I heard of one situation in Rogers County where a lessee was dying and needed cash to pay medical bills. He assigned the same oil & gas lease to six or eight assignees. The first one to file the assignment at the court house got the lease.

Of course, you can own a lease that isn't registered, but I recommend being safe. Toodle on down to the court house and get the documents filed.

Important note to self: Don't leave legal documents in the kitchen drawer. File them at the court house! Then put original documents in a safe place, such as a safe deposit box.

"The lease is available; you can buy the lease." I think she means that you can purchase an assignment. Or maybe she meant you can purchase the minerals from the owner of the mineral rights. I'll have to ask her.

The gap check revealed a demolition notice on the day of closing.

It wasn't there when the abstract was updated in September. It showed up yesterday morning. We were closing at 3:00 pm.

We found out about it at the closing table.

A demolition notice had been filed by the City of Tulsa that very morning.

Who knew that a Demolition Department even existed!

Did you ever wonder what a gap check does?

The gap check is one of those items on a HUD Settlement Statement that I have always regarded as just another way for the closing companies and lawyers to make money. The typical cost of a gap check is $75.

I never paid a whole lot of attention to the gap check, but I will from now on.

The closer asked the buyer whether or not he wanted to proceed with closing.

Of course it was a Friday afternoon and no one seemed to be answering his phone. We kept trying to reach someone who could tell us what was going on.

The home was an REO and, of course, being sold "AS IS WHERE IS."

I was concerned that the buyer would be saddled with a bill for demolition, whether or not he wanted the home to be demolished. Fortunately, we were able to contact someone at the City of Tulsa.

It turns out that a citizen had called The Mayor's Action Line in September about a porch on the front of the house that was falling off. The code inspector had gone out to the home and had recommended the house be demolished.

Meanwhile, the listing agent listed the house and recommended the bank remove the offending porch, which was already removed by the time my buyer saw the property.

Neither the owner nor the real estate agent were aware of the code inspector's recommendation to demolish the house.

The bank that owned the property was paying three years of back taxes, but I thought they should pay for the demolition rather than my buyer. However, if my buyer delayed by choosing not to sign the paperwork, he would have to pay a $100 per diem charge.

In the end the buyer decided that he would go ahead and close and probably will be tearing the house down himself. That would probably be a lot cheaper than letting the City of Tulsa schedule the demolition and have a contractor do the demolition. A professional demolition crew would probably charge the owner more than my buyer was paying for the property -- which was not a lot.

The City of Tulsa stopped it's process of demolition and will be giving my buyer a chance to assess what he has purchased.

We closed. Yeah!!

Selling Land in Oklahoma: Start with a Correct Legal Description and Map the Property

You can only sell what you own, sometimes less, but nothing more.

As REALTORS® it is not our job to write legal descriptions, although we often end up doing just that when we split large parcels of land in order to get them sold.

It's best to have a working relationship with a good real estate attorney and / or a licensed surveyor so that you can pick their brain. Metes and bounds and easements get pretty tricky to map out and that takes special software and expertise -- that's why land surveyor's are hired to certify a legal description.

If you take courses from the REALTORS® Land Institute (RLI), the AAPL, or other seminar providers, you will learn how to split up properties accurately using compasses, hand-held GPS units, and fancy mapping software.

Surveyors have the most expensive and accurate equipment along with years of training and expertise. If you want an accurate map and a correct legal description, hire a surveyor.

Having said that, you can take an existing legal description and map it out on a pad and then walk the fencelines or drive around the fields to find corner posts, etc. Just know that without a stake and pin survey, those fencelines very likely are in the wrong place.

I personally like to give it my best shot and then disclose, disclose, disclose, and continually disclose to prospective buyers where your information came from and recommend that the buyer hire a surveyor. Also, my managing broker recommends getting the buyer's signature on every map and disclosure that you provide.

Let's assume the fencelines are correct. We just want to figure out what it is we are selling.

If you don't own Net Deed Plotter® Software by Greenbrier Graphics, then do what I do and go to the county tax records for starters using the best legal description you have. Hah!

Be aware that the county tax records may not be accurate, and so you may have to go back and forth between the county tax assessor's office and the county clerk's office to determine the correct legal description and get the property plotted correctly. Look at the deed and recent documents that will most likely be accurate. That way you can sit with the tax assessor and correct their maps based on the legal from the county clerk's office.

Get to know the map guy at your county tax assessor's office. (Be generous and grateful. Humble and lovable goes a long way. The AAPL recommends taking doughnuts to the clerks in the county records offices. They work hard to provide us with finding aids and our jobs depend on the accuracy of their work. Keep them happy! Become friends.)

Notice I did not suggest going to the abstract office first. If you don't know the land well enough, they can very well pull the wrong abstract (eg., the one belonging to the son who bought ten acres off the northwest corner of the farm fifteen years ago) when the correct abstract is filed with the "other" abstract company in the county -- the one that uses blue binders rather than red file backs.

You can use Realist for starters, but their database is only dependent on the accuracy of the mapping provided by the county tax assessor.

Why do all this? Our job is to close the deal and get paid. When you have a buyer who buys a piece of land based on a certain legal description the listing REALTOR® took from the Realist tax records and it turns out that the true legal description does not include the 4.5 acres taken up by the county road (because the legal contains language like "north of the road easement" or some other nebulous phrase), then you can find your buyers and sellers squabbling over the contract price because the buyer figured a price per acre and then found out that they were buying less acreage than they originally thought. (Oh, by the way, that's a good reason for the seller to do a survey prior to listing the property.) Again, know what it is you are selling.

What if you are dealing with a vacated subdivision, or even a subdivision where the plat was never recorded with the county clerk? The legal description will not have the Lot 1, Block 2 type of language. It will look more like NW/4 SE/4 SE/4 less and except..... or it will be metes and bounds. That's when you need your map guy at the county tax assessor's office. Be sure to check with the people in the county clerk's office to have them check their little file cards of platted and unplatted subdivisions.

If it is a platted subdivision or ever was platted, then those plats are on file at the county clerk's office.

Do your homework. Don't take your seller's word for it. I can think of one listing currently in our multilist where the REALTOR® has misrepresented the property in three ways: 1) she says Street instead of Avenue, 2) she says the property is in a certain subdivision when there is none on file, and 3) she states that there is a homeowner's association where there is none. Wishing and hoping that your seller is correct in giving you information does not relieve you of the necessity of checking out the accuracy of what you are being told.

Land professionals need to know what they are doing so that they can help families sell their properties without exposure to liability.

You cannot get title insurance on mineral rights.

How do I know this? In 2006 I took the introductory course for new landmen at the University of Oklahoma. The course was an intensive two-day course offered by a CPL (a Certified Professional Landman -- the highest and most prestigious designation for landmen).

Most of the attendees were from Texas and Oklahoma. About half of the attendees were middle aged women working for title and abstract companies -- the very people that go to the court house to build abstracts for the attorneys who read the abstracts and write title opinions.

I asked this specific question: Can you get title insurance on mineral rights? The response from the presenter was a flat out, "No." You can only get title insurance on surface rights.

Just because attorneys rendering title opinions cannot offer title insurance does not mean that they cannot render an opinion regarding whether or not the minerals are included with the land.

Asuming that the abstract is up to date and complete, the attorney looking at the abstract is looking at every piece of paper that has ben filed at the court since Oklahoma statehood -- 1907. In many cases the documents will predate statehood when the Oklahoma Territory and Indian Territory became collectively known as the State of Oklahoma.

In Oklahoma's Indian Territory it all starts with allotment -- when an Indian (a/k/a native American) was given a quarter section for his homestead and three-quarters of a section for his allotment. He therefore has two pieces of property comprising approximately 640 acres in fee simple absolute. He owns everything from the center of the earth to the heavens..... well, let me rephrase that. He doesn't own the land per se, he owns the rights to everything -- he owns the whole bundle of rights, from the center of the earth to where the US government lets the planes fly. We say that he owns that whole bushel basket full of rights in fee simple absolute.

The allotment documents do not specifically say that he owns the mineral rights, a/k/a "oil, gas and other minerals." It just is that way.

So let's say Joe Citizen happens to get hold of his abstract and wants to see if he owns his minerals. He cannot find any place on his abstract where the deeds says that the Grantor "retains" or "reserves" a certain percentage of the minerals when granting the land to the Grantee. That means that the minerals were conveyed along with the surface. The Grantor conveys the whole bushel basket full of rights in fee simple.

Now let's say that the Grantor reserves the minerals. He then creates a separate basket of mineral rights for himself. The deed for the conveyance of the surface rights shows that a certain percentage of the minerals were reserved or retained. Now there are two estates: the surface estate and the mineral estate. (The mineral estate is dominant, by the way.) An attorney will only be able to get title insurance for the surface rights.

The mineral estate takes on a life of its own once it is severed from the surface estate. There will not be a Mineral Deed created until the mineral estate is conveyed. This is where it gets tricky and heirs often do not even know they own the minerals. Eighty years later it becomes like looking for grandmas' jewelry after it has been divided up. It's the job of a professional landman to track down all those little pieces of mineral rights that have been divided up.

In short, that's why you cannot get title insurance on mineral rights in Oklahoma. It just gets too complicated otherwise.

Intangible Personal Property Tax Has Been Expanded to Locally Assessed Businesses by Oklahoma Supreme Court

Mike Means of the Oklahoma State Homebuilders Association sent out a legislative update this morning, saying:

In September of 2009, the Oklahoma Supreme Court ruled that with the exception of items listed in Article 10, Section 6A of the Oklahoma Constitution, locally assessed businesses should be paying ad valorem taxes on their intangible personal property. This means that such things as trademarks, software, patents, contracts, customer lists, company names, etc., are now taxable as intangible personal property. Talk about full employment for the local assessor! Currently locally assessed companies do not pay ad valorem taxes on their intangible personal property. The Supreme Court ruling changes that.

The solution is to look at an in lieu tax. Our state constitution allows for taxpayers to pay certain taxes in lieu of other taxes. Presently, Oklahoma businesses are liable for a state franchise tax. By creating a small business activity tax that would be paid in lieu of ad valorem tax on intangible personal property, we can eliminate the current franchise tax and save Oklahoma businesses from a large tax increase that will inevitably result from the Supreme Court's ruling. The ultimate details of this solution is being worked out by the legislature but the ultimate goal is that it be revenue neutral.

Without this solution, one tax expert says this will be the biggest tax increase in state history. We cannot do nothing.

This issue of ad valorem taxation affects all Oklahoma businesses. It could potentially hurt our economy by scaring business away from Oklahoma.

This is the same Oklahoma Supreme Court that recently ruled that REALTORS® can be sued for fraud if they give inaccurate court house information to buyers regarding residential square footage.

By the way, does anybody know how someone gets on the Oklahoma Supreme Court? How can we get some new blood on the bench? We shouldn't have to spend so much time trying to clean up their mess.