Don’t Jeopardize Your Title: Secure Solar Project Success

Published

Originally published in the May/June 2024 issue of NACE magazine. Written by Jillian Ballard, Director at TerraPro Solutions.

Identifying owners of mineral rights — TerraPro Solutions

Mineral rights identification for utility-scale solar developers

What's underneath the surface of the land that you plan to develop — and who owns it? Identifying owners of mineral rights is critical for utility-scale solar energy projects, especially in regions where these rights are legally separable from surface rights.

This refers to the severance of underground mineral rights from the surface rights of the property. Mineral rights can include natural gas, oil, coal, or any other types of minerals found beneath the surface. Owners of these rights have the legal authority to mine, exploit, or produce those minerals. Importantly, these rights can be sold or leased separately from the land itself — leading to situations where surface rights and mineral rights have different owners entirely.

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A cautionary example: A federal judge ordered the removal of an 84-turbine, 150-megawatt wind farm for encroaching on the Osage Nation's tribal mineral rights. The ruling came after the Interior Department sued the company for failing to obtain a mining approval — a mistake that may cost the developer more than half a billion dollars.

Preliminary Research

It's always a good idea to develop a cordial relationship with landowners. They are likely to have the best knowledge of the ground and what is under it. While their understanding of the legal history may not be perfect, they generally have valuable background information.

Land and mineral rights transactions are recorded at the county assessor and clerk's offices. Many counties now offer online databases, but in-person visits may be necessary. State geological surveys and the U.S. Geological Survey (USGS) can also help identify regions with potential mineral deposits and areas where mineral rights might be actively leased or sold.

Due Diligence and Title Search

Mineral coverage is an ALTA endorsement offered by the title insurance company. It is typically required by lenders or investors as an addition to their policy — so it's critical to get the title insurance company involved as early as possible to strategize what they may need to issue this endorsement.

Typical considerations include whether there are any active wells or mines in the area, whether there are any active leases given by the mineral owners, and whether the developer intends to leave part of the project area open to protect the mineral owner's right to exploration.

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Important: In many states, mineral owners are the dominant estate holder and have the right to enter the surface of the land and use it to access the minerals — even if a surface lease is in place.

Trace the history of mineral rights ownership — look for deeds, leases, wills, and court records that mention mineral rights, noting any divisions or retainments. When faced with complex mineral rights ownership issues, it may be beneficial to hire a professional landman or a title attorney. The goal is to establish a chain of title: a sequence of historical documents reflecting the transfer of mineral rights through time.

Laws governing mineral rights can vary significantly by state, with some states granting more privileges to mineral rights owners than others. Familiarize yourself with pertinent federal and state legislation that may influence your project.

Check active wells and minesConfirm whether there are active wells, mines, or extraction operations near the project area that could signal an active mineral interest.

Review active leasesDetermine whether existing leases give mineral owners current contractual rights to the surface — even if no active extraction is occurring.

Plan for open access areasConsider whether leaving portions of the project area open can protect the mineral owner's right to future exploration — a factor that may affect your layout and endorsement strategy.

Negotiating with Mineral Rights Owners

Many landowners have a clear understanding of the mineral rights associated with their property. By engaging in dialogue early, you can gain insights into the ownership structure and their expectations. Developing trust allows you to explore lease agreements that align with their interests as well as the goals of the project.

Compensation for mineral rights owners can come in many forms — upfront payments, royalties, or a combination thereof. Be prepared to discuss how your renewable energy project aligns with environmental sustainability goals, potentially mitigating concerns about the impact of development on the land. Legal counsel specializing in mineral rights can help craft agreements that protect the interests of all parties involved.

"By engaging in dialogue with landowners early, you can gain insights into the ownership structure and their expectations — and build the trust needed to reach a workable agreement."

Recording as Protection

To eliminate as many title issues as possible, the developer should record memoranda of site control as early as possible. In most states, the person with the most superior rights is the person who has recorded first. The act of recording a document protects the rights of everyone who is a party to that agreement and puts the world on notice — in the public record — of the rights contained therein.

Signing a contract with a landowner protects the developer's interests with that landowner. Most importantly, recording a contract or memorandum protects the developer's interests against any other developer or landowner who may come along and want to purchase or lease the property. The person who records their interest first is described as having priority over people who record later in time.

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Record early. Don't wait until site control is "complete" to begin recording. Priority is established at the time of recording — not at the time of signing. Every day of delay is a day of exposure.

Combined Commitment and Pro Forma

After reviewing a commitment and resolving as many exceptions and requirements as possible, the developer will need to request a combined commitment and pro forma to head into closing. A combined commitment takes each individually produced commitment for each parcel or landowner and groups them into one large commitment reflecting the entirety of the land in the project.

The pro forma is a version of exactly what the policy will look like, assuming all conditions have been met. Pro forma policies also bring with them the possibility of endorsements — add-ons to the title insurance coverage granted by the policy. Several ALTA endorsements specifically pertain to renewable energy projects and closings, including those covering mineral rights conflicts and surface access concerns.

Final Thoughts

Identifying and negotiating with owners of mineral rights is a complex process that requires due diligence, legal knowledge, and strategic negotiation skills. When armed with a willingness to find mutually beneficial solutions, project developers can build cooperative relationships with mineral rights owners — paving the way for successful utility-scale project development.

TerraPro Solutions helps developers navigate every stage of this process, from early mineral rights screening through title curative and financial close. Learn more about our Mineral & Railroad Consulting and Title Curative services.

Mineral rights questions on your project? Let's identify the risk before it becomes a problem.

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