In many parts of the United States, the existence of surface and subsurface minerals are an important consideration when purchasing real estate. Most states with active mineral exploration and extraction have developed laws that make the mineral estate a dominant estate, with the surface estate being subservient to the mineral estate. That means that the owner of the mineral estate can use all or any part of the surface estate in order to develop and extract the minerals. This also means that the owner of an outstanding mineral interest may build roads across any part of the surface land in order to access to the development/extraction site(s), and if there are buildings or other improvements in the way, can even demolish them if they impede this access, generally with no requirement to compensate the surface owner.
Before the creation of the ALTA 35 series of endorsements, there were no separate mineral endorsements, although most of the title insurance companies could provide some type of coverage when necessary, especially in the case of commercial transactions. The only kind of mineral coverage that was available in any ALTA endorsements was in the ALTA 9-06 (Restrictions, Encroachments, Minerals – Loan Policy) and the ALTA Endorsement 9.7-06 (Restrictions, Encroachments, Minerals – Land Under Development –Loan Policy). The new ALTA 35 Series was created to meet the market demand for this type of coverage.
The four new endorsements in the ALTA 35 series provide flexibility for the customer, who can select the appropriate coverage based on the type of improvements located or to be located on the Land, the type of transaction and the particular nature of the minerals and improvements involved.
- The ALTA 35-06 (Minerals and Other Subsurface Substances – Buildings) provides indemnity against enforced removal or alteration of buildings located on the Land at Date of Policy due to the exercise of an existing right to use the surface for extraction or development of minerals or other subsurface substances.
- The ALTA 35.1-06 (Minerals and Other Subsurface Substances – Improvements) provides indemnity against enforced removal or alteration of Improvements located on the Land at Date of Policy because of the exercise of the right to use the surface for extraction or development of minerals and other subsurface substances. Improvements are defined in the endorsement to include a building, a structure located on the surface of the Land, and any paved road, walkway, parking area, driveway, or curb, affixed to the Land at Date of Policy, and that by law constitutes real property. The definition excludes crops, landscaping, lawn, shrubbery and trees from the definition of Improvements.
- The ALTA 35.2-06 (Minerals and Other Subsurface Substances – Described Improvements) provides similar coverage as the first two, but Paragraph 2 of the endorsement allows the title company, at the customer’s request to describe the specific improvements in existence at Date of Policy that are to be covered by the endorsement.
- The ALTA 35.3-06 (Minerals and Other Subsurface Substances – Land Under Development), like the others, provides indemnity against enforced removal or alteration of improvements, but deals not only with improvements in existence at Date of Policy, but also includes Future Improvements (as defined in the endorsement) built in accordance with Plans in existence at Date of Policy. Plans are defined as the “survey, site and elevation plans or other depictions or drawings” prepared by the architect or engineer named in Paragraph 2 (c) of the endorsement.
Paragraph 4 of every ALTA 35 Series endorsement is a paragraph which details specific exclusions from the coverage of the endorsement. Basically, the exclusions deal with loss or damage resulting from issues expected to be encountered when dealing with mineral estates. These are risks such as contamination, explosion, fire, fracturing, earthquake or subsidence. Also, loss resulting from the negligence by a person or any entity exercising a right to extract or develop minerals on the Land is excluded. The endorsement also allows the insertion of any additional exclusion which the underwriter determines to be necessary based on the facts of the particular situation, such as any special documents that are recorded and deal with the mineral estate.
Next time, I will discuss the new ALTA 36 series of endorsements dealing with energy projects. If you are interested in learning more about these endorsements, I will be one of the speakers for an American Bar Association Webinar addressing all the new and revised ALTA endorsements on April 4th. You can contact the ABA at their website , www.aba.net, for further information.