By: Zachary L. Ross
I. How the Problem Got Started
The discovery of oil at the Sunniland Field in 1943 by Humble Oil & Refining Company (now Exxon-Mobil) started a trend in Florida real estate transactions that has increasingly caused problems for modern landowners. With all the oil and mineral explorations that followed the Sunniland discovery, conveyors of real estate wanted to insure that they did not pass on what could be the next big discovery. To protect their interests, sellers of real estate began to transfer the surface estate while, reserving in whole or in part, title to the mineral estate, most commonly referred to as “mineral rights.”
As time has passed, many have learned that their fantasies of striking it rich were simply that: fantasies. Those unfulfilled dreams have become a modern day nightmare for property owners. When the surface estate and the mineral estate are severed, they remain independent. Trustees of Tufts College v. Triple R Ranch, Inc., 275 so. 2d 521, 525-26 (Fla. 1973). The mineral estate is dominant; therefore, the owner of title to the mineral estate has a perpetual easement for the right of ingress and egress to explore, locate and remove minerals. Id. The mineral estate fee holder, therefore, at any time may exercise his or her right, creating a perpetual cloud over the owner of the surface estate’s right to quiet enjoyment of his property. See Id.
Today, it is common to find the surface estate fee holder owning title to the surface estate as well as at least part of the mineral estate, while the other part of the mineral estate is held by descendants of a previous conveyor of the property who reserved part of the mineral estate. The surface owner’s task is to determine how to extinguish the mineral estate, thus eliminating the possibility of the descendants someday enforcing their right to explore, locate and remove minerals.
II. Possible Solutions
A. Quitclaim Deeds
One solution to this problem is to attempt to acquire the descendants’ interests in the mineral estate directly from them. Often, the descendants do not even know that they have an interest in the mineral estate, and, because the mineral estate is often worthless, a quitclaim deed usually can be purchased for a sum far less than the cost of potential litigation. Of course, there are obstacles to obtaining quitclaim deeds. One must determine which descendants have interests and what those interests are. Next, one must negotiate purchasing every descendant’s interest, which can be challenging because they may feel as if they are being hoodwinked. There is also a problem with holdouts. The descendants know that, as a purchaser, one usually wishes to purchase all the mineral rights, and, as you get closer and closer to your goal, the price demanded will tend to escalate. This can be a major obstacle, especially if interests have passed down through the family for decades, leaving tens, if not hundreds, of descendants with whom you must negotiate.
B. Marketable Record Title Act
Another possible solution to the surface fee holder’s problem may be the Marketable Record Title Act. According to section 704.05, Florida Statutes, the easement created for the purpose of exploring and mining mineral rights is extinguishable by the Marketable Record Title Act (Chapter 712, Florida Statutes), unless it falls within an exception. See Fla. Stat. § 704.05; see also Noblin v. Harbor Hills Dev., L.P., 896 So. 2d 781, 785 (Fla. 5th DCA 2005).
As simple as this solution appears to be, the problem with using the Marketable Record Title Act is that it has specific requirements that must be met to clear title. The reservation of mineral rights, or acknowledgment of the reservation in a subsequent transaction, must occur prior to the effective date of the “root of title.” The root of title is “any title transaction purporting to create or transfer the estate claimed by any person and which is the last title transaction to have been recorded at least 30 years prior to the time when marketability is being determined. The effective date of the root of title is the date on which it was recorded.” Fla. Stat. § 712.01(2) (2006). The Act permits the filing of a notice which “provides for a simple and easy method by which an owner of an existing old interest may preserve it.” City of Miami v. St. Joe Paper Co., 364 So. 2d 439, 442 (Fla. 1978). The notice provision and 30 year requirement often eliminate the Marketable Record Title Act as a viable option for extinguishing the mineral estate.
Another solution to the problem, which in many cases may be the most practical, and only, manner in which to extinguish the mineral rights is by bringing a partition lawsuit. Chapter 64, Florida Statutes, provides that one or more of several joint tenants, tenants in common, or coparceners may file an action for partition. Fla. Stat. § 64.031. If the property cannot be divided without prejudice to the owners, then a court may order the mineral estate to be sold at public auction to the highest bidder with the proceeds of the sale being shared amongst the owners in proportion to their interest. Fla. Stat. § 64.071. At the judicial sale, the surface fee titleholder can purchase the mineral estate, extinguishing the perpetual easement. Because the other parties generally hold very small proportionate interests, the fee owner is likely to be the successful bidder.
Partition is a preferable solution because as a general rule it is a matter of right; waiver and estoppel are rare exceptions. Condrey v. Condrey, 92 So. 2d 423, 426 (Fla. 1957). To demand partition, the plaintiff must simply show title or a right to partition. Roundtree v. Roundtree, 101 So. 2d 43, 44 (Fla. 1958). The court will determine the interests of the parties and partition the property amongst the parties pursuant to their established interests. Fla. Stat. § 64.051. Only when the court determines that the property is indivisible and not subject to partition without prejudice to its owners will the court order a sale. Rose v. Hansell, 929 So. 2d 22, 23 (Fla. 3d DCA 2006). Because mineral estates are difficult to partition without prejudice, a judicial sale is often required.
An additional benefit of the partition solution is that each party is required to share the costs, including attorneys’ fees of the parties which were rendered and of benefit to the partition, in proportion to each party’s interest. Fla. Stat. § 64.081. Services “of benefit to the partition” includes prior actions to establish or protect title to the property. Diaz v. Security Union Title Ins. Co., 639 So. 2d 1004 (Fla. 3d DCA 1994). Attorneys’ fees are also paid in proportion to each party’s interest. As such, if there are ten parties with an equal one-tenth interest, then each party is liable for one-tenth of the attorneys’ fees awarded, even if only one party hired an attorney. See Id.
Partition, however, is not without its potential problems. The goal of a partition action “is to avoid the problems arising from common possession of the property, not to recover possession of the individual moiety.” Diedricks v. Reinhardt, 466 So. 2d 375, 377 (Fla. 3d DCA 1985). As such, there is no guarantee that you will be able to acquire title to the mineral rights. If a judicial sale is order, the property will be sold to the highest bidder. The proceeds from the mineral rights sale are divided amongst the interest holders proportionate to their interest. As a simple example, if you own a 70% interest in the mineral rights and purchase the mineral rights at public auction for $1,000, then your net payment is $300 because $700 would be returned to you as your proportionate interest in the sale proceeds.
The biggest obstacles with the partition solution are determining the who has an interest and serving all the necessary parties. A partition complaint must, inter alia, identify the names and places of residence of the every party with an interest in the property to the plaintiff’s best knowledge and belief, and it must provide the quantity held by each party. Fla. Stat. § 64.041. Since many of the mineral rights reservations in Florida stem from transactions in the 1940s and 1950s, it may be time consuming and costly to determine who has an interest and the amount of that interest. Once all the parties and interests are identified, they must be located and served. In many cases, determining the parties and their interest along with service will represent the vast majority of the attorneys’ fees and costs.
Due to the trend of reserving mineral rights during the 1940s and 1950s, there are numerous properties across Florida to which the surface fee estate is subordinate to a perpetual easement held by the mineral estate. As the population continues to grow, the demand to extinguish these rights will increase as the properties subject to them were frequently rural tracts which are now being developed. To extinguish mineral rights, practioners have different options available to them. Which option is best will depend on the facts specific to each case. In most cases, the best option will be to pursue partitioning the mineral estate. At a partition sale, the surface fee titleholder can purchase the mineral estate, thus uniting ownership of the surface estate and the mineral estate thereby extinguishing the perpetual easement.