When purchasing property, it’s up to you as the buyer to research whether you are buying land without mineral rights.
This means it is a good idea to have at least a basic understanding of the concept.
To start with, you should know that there are different kinds of rights associated with real estate in the United States, and two of the primary rights are surface rights and mineral rights.
These rights determine how you can develop, use, explore, and extract what’s on your property.
And if you don’t have ownership of both rights, things can sometimes get complicated.
Then read on to learn more about the top things you should know about mineral rights!
What are surface rights?
Surface rights refer to the ownership of the surface of the land.
This includes buildings and dwellings and then also extends to the right to use the land.
Furthermore, surface rights denote the ability to dig into the land to bury storage tanks or dig for wells.
However, just because a person owns the surface rights to a piece of real estate does not mean they own the right to explore, extract, and sell the minerals that may be found beneath the surface.
This is often confusing for landowners.
Just because you have the surface rights to the land doesn’t mean you can sell your property for exploration and extraction or enter into an oil or gas lease.
What are mineral rights?
Mineral rights are the ownership rights relating to underground resources like oil, silver, or natural gas.
However, the right to any subsurface water is one important exception to mineral rights.
In many instances, surface owners retain rights to the water on the property (although in some states, there is a separate water rights regime that complicates ownership for the surface owner).
Mineral rights don’t come into effect until you begin to dig below the surface of the property.
But the bottom line is: if you do not have the mineral rights to a parcel of land, then you do not have the legal ability to explore, extract, or sell the naturally occurring deposits below.
With these definitions in mind, here are the top things you should know about buying lands without mineral rights.
1. Mineral rights may be severed at one point or another
Mineral rights get tricky because they’re automatically included as a part of the land in property conveyance…until they’re not.
The surface rights and the mineral rights can be severed at some point by an owner or seller to create a split estate.
This can happen in a few ways:
Selling the surface rights (“land”) but retaining the mineral rights.
Selling the mineral rights but retaining the surface rights (“land”).
Selling the surface rights (“land”) to one person and the mineral rights to another
Each surface rights owner thereafter can only sell what they themselves own.
To the naked eye, this is perceived as selling the “land.”
However, they are not selling the mineral rights.
They are only selling the surface rights, and it can be difficult to discover who owns the mineral rights unless that information is passed along during each successive sale of the surface rights.
For many surface rights owners, this means that they often cannot determine who owns the rights to the minerals just by looking at the deed.
2. Mineral and surface rights can both have co-ownership
As if selling off only mineral or surface rights isn’t confusing enough, both have the potential to have co-ownership.
Co-ownership occurs when the surface rights owner wants to retain a partial stake in the mineral rights of the property.
To do this, they would sell off only a percentage of their mineral rights.
They may also sell a specific section of their mineral rights (in terms of land area) to several different buyers.
This means that there could be several mineral rights owners that you’re looking for when you’re doing due diligence on a property.
To make things even more complicated, mineral rights can also be subdivided into separate estates for different minerals.
For example, one person may own the right to extract oil while another may own the right to extract metals.
3. Just like surface rights, mineral rights can be bought, leased, and sold
As described in the above scenario, mineral rights can be severed from surface rights and sold separately from each other.
When this happens, a property owner may choose to buy or sell either surface rights or mineral rights while retaining the other.
Another common alternative is for the property owner to lease out the mineral rights to a third party.
In these scenarios, the lease typically has a primary term, or a fixed amount of time during which the lessee has no obligation to search for or extract minerals.
While the primary term will be for a fixed number of years, there is also a secondary term, which typically extends for the length of production should it occur.
So even if the primary term is only two years, if minerals are still being extracted after that two year period is up, then the lease can be extended.
This can complicate your role as a surface rights owner if you buy the property during the term of the lease.
Furthermore, the holder of the lease will also need to discharge or release the lease in order to confirm that the lease is complete.
4. Surface rights do not equate to mineral rights
As you’ve probably gathered, just because you have surface rights to a parcel of land does not mean you have the mineral rights.
Land ownership ultimately has two levels, and it’s worth investigating the rights you’ll have as a landowner before investing in the land, especially if you suspect that it may contain minerals.
Buying land without mineral rights is common, but you’ll want to make sure you know what that involves for your specific parcel.
5. Your property isn’t worthless without mineral rights
This is a big fear for anyone buying land without mineral rights.
Is it worthless?
Should I even make the investment in the first place?
A question to ask is whether the surrounding area has a history of mineral exploration and extraction.
If it doesn’t, buying land without mineral rights may not be of much concern.
However, if there does appear to be a fair amount of exploration activity in your area, you will want to dig deeper.
It’s also worthwhile to know that YOU still have some protections as the surface rights holder.
This is because, in many states, the mineral rights owner will need to enter into an agreement or contract with you before using the property.
Even if not legally required, the mineral rights holder will likely try to negotiate an agreement with you anyway to ensure smooth operations.
Furthermore, if your land is damaged in any way by the process of mining, you may be eligible for compensation.
Just remember that you have rights as a surface rights owner.
Your property isn’t worthless at all.
Speak with a lawyer local to your area who is familiar with both mineral and surface rights.
They can help ensure that you make an informed investment decision.
6. Due diligence is required prior to purchasing land without mineral rights
When you purchase land as an investment, due diligence is always required.
If you’re potentially purchasing land with or without mineral rights, find a local attorney that has experience in this area.
Ideally, they would have dealt with mineral rights previously and would know the mining and drilling activity in the area.
You’ll need to weigh the pros and cons to see if the property is worth it.
For instance, you may not be buying it for the minerals at all.
You may just want a rural parcel of land where you can grow crops, raise livestock, or hunt.
However, mineral rights can allow other individuals to access your parcel (see #8!).
This means that whoever holds the mineral rights can interfere with these endeavors and prevent you from using your land the way you’d like to.
Remember, it never hurts to do due diligence, it only hurts not to!
7. You can profit from mineral rights in several ways
Mineral rights can be profitable, particularly if you live in or are looking to relocate to an area with a lot of energy sources or minerals.
You may not know where these areas are now, but with a little bit of research, you can be on the lookout for properties that can make you money (see #9 for a complete list of areas!).
Owning the mineral rights to your property does allow you to make money from your land because you can either sell the mineral rights or lease them to an interested party if you do not personally want to explore and extract what’s beneath the surface.
When you lease the property you will typically receive a bonus upfront as well as royalty payments (i.e. a percentage of the profits) if any minerals are found.
Should you want to lease your mineral rights, make sure you consult with a lawyer to ensure that the terms of your lease make sense for everyone involved.
If you choose to sell, you’ll want to ensure that you maximize the number of potential buyers who see your parcel before selecting one.
8. Mineral rights allow individuals to access your land within reason
This is one of the most important questions when it comes to buying land without mineral rights.
What happens if someone who has mineral rights wants to access land that you have surface rights to?
Do they have a right to?
How does that work legally?
Let’s look at the scenario below.
An individual or company owns the mineral rights and wishes to extract silver.
They tell you they want to place equipment in your yard – within the surface rights zone.
You legally own this.
Do they have a right to do this?
The answer is yes.
When mineral rights are sold, a small number of surface rights are often included in the transactions, and it allows the mineral rights owner to set up a reasonable workspace.
If you feel this could intrude on your original intention for the property, then you may want to reevaluate purchasing it altogether.
Again, the question you will want to ask yourself is whether there appears to be a history of extraction in your area.
When there is little chance that the property has any minerals of value on it, not having mineral rights will likely be less of an issue.
9. Different areas are known for having different resources
Looking for a comprehensive list of which areas may have an abundance of minerals? Look no further!
Coal: Midwest, Appalachian region, Gulf Coast, the West
Copper: Arizona, Utah, New Mexico, Montana, Nevada
Gold: Alaska, California
Iron: Michigan, Minnesota, Utah
Natural gas: Marcellus Shale formation in the eastern US, Appalachian Basin, Arkansas, Colorado, Louisiana, Montana, Nebraska, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Texas, West Virginia, Wyoming
Oil: Alaska, California, Colorado, Louisiana, New Mexico, North Dakota, Oklahoma, Utah, Texas, Wyoming
Silver: Alaska, Arizona, California, Colorado, Idaho, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, Oklahoma, Oregon, Pennsylvania, Texas, Utah, Virginia, Washington
Uranium: Alabama, Alaska, Arizona, California, Colorado, Florida, Idaho, Nebraska, Nevada, New Jersey, New Mexico, North Dakota, Oklahoma, Oregon, Pennsylvania, South Dakota, Texas, Utah, Virginia, Washington, Wyoming
10. You can do a search for mineral rights records
During your due diligence, you can do a specific search for mineral rights.
However, it’s not as simple as finding out who owns a particular property.
Here are some common ways to search for mineral rights records.
Review county records and tax assessor’s documents.
If you perform a deed search at the county records office, you can see the ownership history of any property over time.
A key indicator that a property may have severed mineral rights would be if a gas and oil company ever owned the property in the past.
Since the deed may not have a clear sign of mineral rights, you’ll likely have to do additional research.
However, this is often a good starting point and can point people in the right direction.
Look at loan defaults and foreclosures.
This is a smart place to start when looking for mineral rights because the bank will have seized both surface rights and mineral rights if anyone ever defaulted on their loan to the property.
Then, if the property was sold at auction, they may have neglected to transfer those mineral rights to the new owner.
This, too, requires additional research to ensure you know who still retains the mineral rights to the property.
Keep royalty deeds in mind.
Certain properties may permit an owner to issue a royalty deed.
This means that the owner collects a royalty on the minerals that are mined from their property.
Royalty deeds can help point you to the mineral rights holder.
Use a title company.
While you’ll have to pay a fee, a title company can conduct the search on your behalf in a painless way.
You’ll find out who has the mineral rights to your property, and it’ll save you time.
11. The value of mineral rights is determined by what a buyer is willing to pay
If you’re in the buying process, you may wonder what the actual value is of having mineral rights.
If you’re buying land without mineral rights, is that drastically impacting your investment?
Is it okay to do it?
How do you know if the numbers will add up?
The truth is that there’s very little information available as prices changes so rapidly.
Your mineral rights are worth whatever someone is willing to pay for them that day.
If you want insight into what mineral rights in your area may be worth, try reaching out to a local professional or lawyer.
They may be able to give you a rough estimate so that you know whether or not you’re valuing your property correctly.
In the end, it also depends on the property location and what you want to do with your property.
It can often make sense to buy property without mineral rights, especially if it is at a great price.
In short, if you are buying land without mineral rights, the best way to do it is to research and do due diligence BEFORE buying the property.
Once the surface rights and the mineral rights are severed, you can’t do anything about that.
However, property without mineral rights isn’t worthless, and if someone wants to extract minerals from your land, you’re likely entitled to compensation.
You should contact a local lawyer and discuss the situation with them.
Don’t worry – you have options!
If you are looking to buy affordable land, you can check out ourListingspage. And before you buy land, make sure you check out Gokce Land Due Diligence Program. If you are looking to sell land, visit our page on how to Sell Your Land.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.
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Erika is a former Affordable Housing Director for the City of New York turned full-time Land Investor. She used to help New Yorkers find affordable housing, now she helps people find affordable land around the US.
Prior to starting Gokce Capital, Erika received a Bachelor of Architecture from the University of Southern California and a graduate degree in Urban Policy from Columbia University. She worked as both an architectural designer and engineer in New York before joining the New York City Department of Housing Preservation and Development.
Erika currently lives in the New York Metropolitan area with her spouse, daughter and cat. She is originally from Chicago and still considers herself a midwesterner at heart.
Erika also loves to read, write and travel (fun fact, she has visited all 50 states and more than 30 countries!). Her new book, Land Investing Mistakes: 11 True Stories You Need To Know Before Buying Land, is now available on Amazon.
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What does no mineral rights mean? ›
Mineral rights don't come into effect until you begin to dig below the surface of the property. But the bottom line is: if you do not have the mineral rights to a parcel of land, then you do not have the legal ability to explore, extract, or sell the naturally occurring deposits below.Is it worth buying mineral rights? ›
When it comes to mineral rights, the standard admonition has long been consistent and emphatic: Avoid selling them. After all, simply owning mineral rights costs you nothing. There are no liability risks, and in most cases, taxes are assessed only on properties that are actively producing oil or gas.How do I calculate cost basis for mineral rights? ›
Determining Cost Basis for Inherited Land
The cost basis for inherited mineral rights is “fair value.” It's simply the book value of what you receive on the day you acquire it. If you sell your rights afterward, you'll have to pay capital gains tax on the difference between your cost basis and the sale price.
- Decide how you'll pay. ...
- Compare your financing options. ...
- Consider every expense. ...
- Find land for sale. ...
- Research the property. ...
- Make your offer.
Surface rights are what you own on the surface of the property. These include the space, the buildings and the landscaping. Mineral rights, on the other hand, cover the specific resources beneath the surface.Can you get rich off mineral rights? ›
Mineral rights can be a very valuable – and profitable – property interest if you know how to utilize them. Mineral rights can refer to oil and gas, but can include other valuable substances like gold, silver, coal, and even sand, gravel and clays.Do mineral rights increase property value? ›
Owning mineral rights along with surface rights greatly increases the value of a property since residents now have complete control over the resources on their land. They can freely choose to lease the property to extraction companies or not, as those with mineral rights are considered the dominant party.Why do people want mineral rights? ›
People sell their mineral rights for a variety of reasons. Some need immediate cash, while others are seeking to improve the quality of their lives. Most want to sell while their minerals still have value and to avoid burdening their heirs with the learning curve and management duties.How much tax do you pay on mineral royalties? ›
While the royalties you could earn from your ownership of mineral rights are taxed as ordinary income, the IRS considers the amount gained from selling those rights to be a capital gain. As with the sale of real estate or other capital assets, you report the sale of mineral rights on Form 4797.How much taxes do you pay on royalties? ›
Federal tax must be withheld at the rate of 30% of gross royalties unless an IRS tax treaty is applicable. See IRS Tax Treaty Table 1 (Royalties).
How do I calculate cost basis for land? ›
Calculating Land Basis
Add what you paid to purchase it to what you have spent on any capital improvements to the property. For instance, if you put $250,000 down and borrowed $500,000 to buy a $750,000 piece of land and then spent an additional $100,000 on grading, your basis would be $850,000.
Mineral rights represent the ownership right to any underground resources – including metals and ores, fossil fuels, and other mineable rocks that are present on a property. Having this right makes it possible for an owner to win and exploit all natural resources that are present beneath the land.What is an example of mineral rights? ›
A mineral owner's rights typically include the right to use the surface of the land to access and mine the minerals owned. This might mean the mineral owner has the right to drill an oil or natural gas well, or excavate a mine on your property.Who has mineral rights on land? ›
The Supreme Court, in 2013, conferred rights to mineral wealth on owners of surface rights rather than vesting them in the state. The Supreme Court, however, is yet to rule on certain aspects of ownership of minerals such as the liability of private owners to pay royalties to the state.