TX Real Property + Oil & Gas Flashcards
Periodic Tenancy in TX
By statute, the required notice to end any periodic tenancy is 30 days and the notice does not have to be given so that it will end on a periodic ending date. The statute allows for proration of rent.
Forcible Entry and Forcible Entry Detainer Statutes
TX statutes that provide both residential and commercial landlords a quick, inexpensive judicial process to evict tenants wrongfully in possession.
Jurisdiction is in the justice courts.
Eviction cannot proceed until the landlord provides at least 3 days notice to vacate, unless the lease agreement calls for a longer or shorter period of time
Covenant of Quiet Enjoyment
The CoQE does not apply to physical repair issues, as the statutory warranty supersedes the common law.
However, the CoQE can still be used for non-physical repair issues like noisy neighbors and criminal activity by other tenants.
Statutory Warranty
Supersedes the common law implied warranty and physical repair issues in the CoQE for ONLY residential leaseholds.
TPC requires the landlord to make repairs to conditions that materially affect the health and safety of an ordinary tenant.
Statutory Warranty: Waiver
Can only be waived if 1) a landlord owns only one rental dwelling, 2) the property is not in need of repair at the beginning of the leasehold, 3) the landlord does not know or have reason to know of any problems that would occur during the lease or an extension or renewal, and 4) the lease is in writing, with a provision in bold or underlined that is clearly, voluntarily, and knowingly made for consideration
With a valid waiver, the tenant will be required to make and pay for all repairs
Statutory Warranty: Notice
Tenant must send a written notice to the landlord by certified mail return receipt requrested, by registered mail, or by other mail service that allows tracking of delivery.
Notice must be given to the person or place where rent is normally paid, and tenant must be current on rent. After receiving notice, the landlord must be given a reasonable time to repair/respond.
Statutory Warranty: Remedies
1) Terminate lease and obtain judicial remedies
2) Stay and sue for judicial remedies, including damages and an order for landlord to make repairs
3) Choose the repair and deduct remedy, which allows tenant to make repairs and deduct the cost from the next month’s rent.
Assignments/Sublets
No right to assign or sublet in TX unless permission given by landlord
Security Deposits
No limit on amount of security deposit and landlords are not required to pay interest on deposits that are held.
Implied Easement by Prior Use
Use must be strictly necessary for the continued enjoyment of the now dominant estate.
If the implied easement by prior use is impliedly granted, then only reasonable necessity is required.
IEbPU not available for landlocked property. Use implied easement by necessity instead.
Easements in Gross
May not be transferred unless the language of the easement says so.
Except conservation easements.
TX Adverse Possession Period Statutes
Title or Color of Title: 3 years if possessor is there under a color of title and has only narrow specified defects
Duly Registered Deed and Payment of Taxes: 5 years if possessor is there under a recorded deed that is otherwise defective and pays all taxes.
Bare Possession: 10 years, limited to 160 acres or larger area if fenced in, but with a “deed” whatever land is described in the deed.
True Owner under Disability: 25 years
Intent to Appropriate
Required in TX that adverse possessor was trying to take something that wasn’t his
Statute of Frauds: Doctrine of Part Performance
All three requirements (possession, payment of all or part of purchase price, and improvements) required to satisfy part performance and thereby get around the SoF in TX
Risk of Loss
Lies on person in possession at the time of the loss under the Uniform Vendor & Purchaser Act
Seller’s Duty to Disclose
Under Sec. 5.008 of the TPC, a statutory seller’s disclosure form must be completed honestly by the seller and provided to the buyer before entering into the sales contract for a residential property.
Exceptions: Foreclosure sales, property resold after foreclosure by the bank, and sales between co-owners
Transfer on Death Deed
Allows property owner to designate a transferee to receive title to the property on the owner’s death without the necessity of probate.
Must be recorded to be valid, but no delivery required.
Owner retains power to transfer or encumber the property or revoke the deed.
Covenants by Deed
Under the TPC, if a deed uses the words “grants” or “conveys” there are two present covenants impliedly included: the covenant against encumberances and covenant of no prior conveyances
Texas Recording Act
Notice Recording
Bona fide purchasers, including mortgagees, and good faith creditors may use the statute to win over the first in time, first in right.
Deed must be signed and signature must be either notarized or signed by two witnesses to be properly recorded in TX.
Quitclaim Deeds
In TX, Quitclaim deeds put the grantee on notice of any defects that exist in the chain of title. The grantee under a quitclaim deed cannot be a BFP
Deeds of Trust
The most often used security instrument in TX.
Not an actual trust.
Debtor is referred to as “grantor” and lender as “grantee”
Third party trustee is also named
Equity of Redemption
Exists in TX. No statutory right of redemption.
Foreclosure Sales
Typically nonjudicial in TX.
For residential property: Debtor must be given notice of default and at least 20 days to cure AND notice of sale (filed w county clerk and posted at courthouse at least 21 days in advance if not cured.
Junior interests are only necessary parties for judicial foreclosure sales
Deficiency Judgments
Limited to the difference between the outstanding debt and the fair market value of the property at the time of the foreclosure if proper process is utilized.
Statutory Mechanics’ and Materialmen’s Lien
If validly perfected, MML can protect workers and suppliers to workers on real property and it has priority over mortgages or other liens.
Installment Land Contracts
- Sellers must give buyers detailed statutory notice of a prospective forfeiture.
- If buyers have made 48 monthly payments or paid 40% of the principal, 60 days to cure; if not, 30 days
- If a contract for deed (ILC) is recorded it is treated as a warranty deed with vendor’s lien
Texas Homestead: Establishing
- Family or single adult
- Intent to have it as homestead and actual occupation (or adequate preparation)
- Leasehold or life estate can be ok
TX Homestead: How Much?
Rural: 200 acres (family) or 100 acres (single)
Urban: 10 contiguous acres
TX Homestead: Debt Protection
The only liens that can be validly attached to a homestead are:
- Purchase money
- Taxes
- MML for improvements
- Owelty of partition judgments
- Refinancing of an otherwise permissible lien
- Home equity loans and lines of credit
- Reverse Mortgages
- Refinance of a chattel mortgage with the mortgage of land
TX Homestead: Death of Owner
Surviving spouse has right of occupancy.
Guardian of minor children may request right of occupancy, but are trumped by surviving spouses.
If no surviving spouse or minor children, homestead terminates.
TX Homestead: Abandonment
Terminates homestead.
Requires clear evidence of non-use AND an intention to cease using the property as a homestead.
Rule of Capture
Basic rule for mineral rights in TX
Rule of nonliability for causing O&G to migrate across property lines, resulting in “drainage” from under another’s land
Limitations of the Rule of Capture
Limited by correlative rights, which means O&G owners have a right to a fair opportunity to produce from a common reservoir under his property. Therefore, RoC does not apply to:
1) Negligently drilled O&G
2) Illegally drained O&G
3) Stored gas
Mineral Interest RIghts
1) Development (explore, produce, develop, etc.)
2) Executive - The right to lease the minerals
3) Economic Benefits, including:
a. Bonus (for signing lease)
b. Royalty
c. Delay Rentals for deferring drilling
Dominance of Mineral Estate
When the ME has been severed from the surface estate, the owner of the ME can use the surface as reasonably necessary to develop the minerals
Accommodation Doctrine
Requires mineral owner to accommodate surface uses only under the following conditions:
1) Surface owner has a preexisting use of the surface
2) ME owner has a reasonable alternative method for developing minerals that is less destructive of the surface
3) The reasonable alternative is available on the leased tract
Interests Created by O&G Leases
An O&G lease conveys a Fee Simple Determinable and creates two sets of interests:
1) The Working Interest - Gives lessee exclusive right to explore, develop, and produce from the property and the obligation to pay all costs of production
2) The Royalty Interest - Gives lessor a share of the production that is free of the costs of production
Nonparticipating Royalty Interest (NPRI)
Grants the right to receive royalty payments to someone other than the mineral interest owner.
NPRI owner may not participate in any leasing transaction
Concurrent Ownership: Cotenancy
Every tenant can drill and produce or lease his undivided interest without the consent of other contenants, but must account to the others for their rightful share of the profits from production (as opposed to a royalty interest, which the lessor will have)
Cotenants can ratify the lease and take a royalty interest instead of a share of the profits
Cotenants have absolute right to partition property. Courts favor partition in kind over partition by sale, unless PiK would be inequitable (e.g. if the mineral reserves were distributed unevenly)
Successive Ownership and Leasing
Neither life tenant nor remainderman can grant a valid O&G lease without joinder of the other
Once a valid lease is entered into, if grant of life tenancy is silent, life tenant gets current income and interest, including 100% of delay rentals plus interest on bonus and royalty. Remainderman gets principal of bonus and royalty once life tenant dies.
Open Mines Doctrine - Where lease was in place prior to the creation of the life estate, life tenant gets all benefits under the existing lease
Mortgagor/Mortgagee
Traditional rule of first in time, first in right
- If mortgagee records before lease executed, the lease survives a mortgage foreclosure, but the surface rights still terminate
- If O&G lease recorded before the mortgage, lease cannot be foreclosed against because the mortgage did not include minerals as an asset belonging to the mortgagor
- Marshalling the Assets - At foreclosure, the mortgagee must sell surface assets first to satisfy the loan before selling the mineral estate
Trespass Against Mineral Rights
Ordinary Trespass - Lease expires, but lessee stays on tract
-Remedy: Injunction and damages
Slant Well Drilling
-Remedy: Injunction and damages
Drilling Dry Well
-Remedy: Lost bonus
Geophysical or Seismic Trespass
-Remedy: Sue in assumpsit for market value of a contract for the right to do seismic exploration
Secondary recovery operations are not a trespass
Good Faith/Bad Faith Damages for Trespass
Good Faith - If trespasser had honest and reasonable belief in superiority of his title, he will get credit for costs incurred in production if the costs benefited the rightful owner
Bad Faith - Trespasser will be liable for the gross value of production from the well
Slander of Title
P must prove:
- Publicaiton of a false claim of title to the property
- With malice; and
- Loss of specific sale or leasing opportunity because buyer did not want to purchase property with disputed title
Damages measured by difference between market value of lease at the time of the slander and its value at trial with cloud removed
Adverse Possession
Applies to O&G interests. Key question is when mineral estate was severed
a. Possession begins prior to severance - Possessor gets title to both
b. Possession begins after severance - Surface estate only, unless APor can show a separate action of possession
Granting Clause of O&G Lease*
Purpose: Sets forth rights given by Lessor to Lessee and description of the property
Mother Hubbard Clause: Allows lessee to pick up small strips of land not specifically included in granting clause because of mistakes in surveys or descriptions
Habendum Clause–Production in Paying Quantities (PPQ)**
Purpose: Sets duration of Lessee’s interest. Typically w (i) a primary term, during which lessee has no obligation to drill and (ii) a secondary term, which is indefinite but normally linked to production
O&G leases are construed against the lessee
In TX, “production means PPQ. Formula is:
Revenues minus Lessor’s Royalty minus Operating Costs
Common Law Exceptions to PPQ
Temporary Cessation Doctrine - Key factors
a. Short, temporary shutdown
b. Which lessee acts diligently to fix
c. Due to a mechanical breakdown or the like
Marginal Well Doctrine - Applies when wells only produce certain months out of the year. Test is whether a reasonably prudent operator would continue to operate the well for profit
Doctrine of Repudiation - Extends lease where Lessor obstructs Lessee from developing
Delay Rental Clauses**
Authorize lessee to delay drilling by paying a stipulated amount to the lessor.
“Unless” delay rental clause - Lease terminates automatically if DR not paid
“Or” delay rental clause - Creates a covenant and the lease does not terminate automatically
-Remedy: Lessor must sue for breach of contract–damages in amount of unpaid rentals
Late Delay Rentals**
If lessor accepts late DR payment lease comes alive again based on a loose theory of estoppel.
Requires (i) act of lessor (ii) upon which lessee detrimentally relied (e.g. cashing the check)
Commencement of Drilling Clause**
If DR clause sets a date by which operations must commence, “commencement depends on two factors:
- Objective physical acts on leased premises
- Subjective good faith intent to pursue drilling operation
Shut-In Royalty Clause***
Defensive savings clause, which provides that when a well ceases PPQ due to market conditions, Lessee can hold lease by paying shut-in royalties
Other Defensive Savings Clauses**
Dry Hole Clause: If lessee drills dry hole, can maintain lease by starting to drill another within stated time
Continuous Operations Clause: Covers situations where, at the end of the primary term, operations have commenced, but there was not yet actual production
Cessation of Production Clause: Provides that if a well ceases producing, Lessee can maintain the lease by commencing repairs within the stated time
These clauses can be tacked together
Force Majeure Clause**
Excuses or extends time for performance for unforeseeable factors beyond lessee’s control
Tip: Check whether FMC covers only covenants or also conditions
Pooling Clause**
Allows lessee to hold several tracts under lease with PPQ from just one well located on one of the tracts. Royalty will split between various tract owners.
PC and NPRIs - Executive right holder has no power to pool the nonparticipating interests, even though he has the power to lease them
Royalty Clause
Cost-Free Nature of Royalties - Royalties are typically free of production costs but not post-production costs (e.g. transportation)
Royalty Clause and Market Value - When leases provide for royalties based on the market value at the well, royalties will be calculated according to the cost of the minerals on the spot market at the time of production
Division Orders**
Tells lessee how to divide proceeds from the well among all the various lessors, NPRIs and working interests owners
Lessee creates DO for each owner, owner signs as correct, lessee then pays on the basis of the DO
Under common law, DOs were binding until revoked
Under 1991 DO Act, (not retroactive) DOs are still binding until revoked, but a DO can never contradict a lease, so if it does, it is invalid and RIO is entitled to past underpayments
Implied Covenants*
Standard of Performance: Reasonably Prudent Operator
-Lessor has burden to prove lessee could recover O&G at a profit (including costs of drilling, not PPQ standard)
Implied Covenant to Protect Against Drainage: RPO standard with 3 elements;
a. Substantial drainage;
b. Lessee could drill a profitable well to offset drainage
c. Damages
**Implied Covenant to Market: RPO standard requiring lessee to market the O&G within a reasonable time at the best price realizable
Implied Covenant to Develop: Lessor must prove reasonable expectation of profit from additional drilling,regardless of where the proposed well is located
Executive Right**
Nonparticipating owners rely on executive right owner to realize income from their interests. Duty depends on conduct.
Utmost Good Faith and Fair Dealing - Usual duty; requires ERH to act with due regard for nonparticipating owners and be willing to execute a lease on the same terms as a reasonably prudent landowner with no nonparticipating interest
Fiduciary Standard - Imposed by courts when ERH engages in egregious self-dealing. Remedies can include cancellation of executive right, cancellation of leases, and damages.
Surface Owners vs. Mineral Owners–Meaning of “Minerals”**
Surface Destruction Test - Held that minerals belonged to the surface estate if reasonable methods of extraction would destroy the surface
Ordinary and Natural Meaning Test - 1984 and onwards.
The Non-Apportionment Rule*
When property is subdivided after an O&G lease has been entered into, the owners of the subdivided interest are not entitled to apportioned royalty payments.
They are entitled to an apportioned delay rental.
Community Lease
Where two or more contiguous property owners enter into a single lease covering all their property, in TX this is taken as an implied pooling agreement
The Duhig Doctrine
In a 3-or-more party chain of conveyances, in which the grantor seemingly conveys more than 100% of the mineral or royalty interest, grantee bears the loss
Fractional Interest Problems and the Duhig Doctrine*****
Deeds are construed against grantor
The Four-Corners Rule - Requires that courts try to harmonize all the clauses to give effect to each
Courts read the terms of deeds very literally
Conveyance of a Mineral Interest vs. a Royalty Interest*****
- Royalty Language: “Oil, gas, and other minerals produced and saved.”
- Mineral Language: “Oil, gas, and other minerals in, on, or under the property.”
- Mixed Language: In TX is generally construed as creating a mineral interest
Texas RRC Policy Objectives
- Prevent Waste
- Protect Correlative Rights
- Protect the Environment
RRC will use drilling permits, spacing rules, prorationing rules, and MIPA and compulsory pooling to achieve these objectives
Spacing Rule
A drilling permit is required before a well can be drilled. Applicant must have 40 acres to drill.
Exceptions:
1) Confiscation (i.e., drainage) is proven, and
2) Subdivision (small tract was subdivided by deed before O&G was discovered in area or before land was leased)
Prorationing
RRC can regulate the maximum amount of O&G that wells can produce
MIPA
RRC can force owners to pool in fields discovered after March 8, 1961
Owners seeking pooling under MIPA must first make a fair and reasonable (from the viewpoint of the party being compelled to pool) offer to pool voluntarily
Preempts Rule of Capture
Plugging Wells**
Duty to Plug enforced in the following order:
- Operator
- Non-Operator who owns a working interest
- State of TX
Mineral interest holders, royalty owners, and other interested persons who do not have a working interest in the well have no duty to plug
When will a homestead (or land in general) be classified as urban under the TPC?
- If it is located within the limits of a municipality or its extraterritorial jurisdiction or a platted subdivision; AND
- Served by police and fire protection (paid or volunteer); AND
- At least 3 of the following services are provided by a municipality or under contract to a municipality:
a. Electric
b. Natural gas
c. Sewer
d. Storm sewer
e. Water
