INCREASE IN LANDOWNER-SELLERS’ DESIRE TO RETAIN GROUNDWATER RIGHTS BY EXCLUDING THEM FROM SALE
As prolonged drought and population explosion persists in Texas, groundwater and the right to produce it are becoming increasingly valuable components of Texans’ bundle of property rights as landowners. The greatly enhanced value of water in Texas has resulted in a significant increase in Sellers attempting to retain rights to produce groundwater even after selling the surface of their properties. This is especially true in the water-rich rural areas that surround Texas’ most populous cities.
Reserving groundwater from the property interests conveyed at closing is sometimes misunderstood, resulting in the unintended transfer of groundwater rights to the buyer. This can be a costly mistake!
I attribute much of this confusion to the mistaken belief that groundwater rights are part of the mineral estate. Texas law is clear that they are not. Landowners and their real estate professionals should educate themselves on how Texas treats the groundwater estate relative to the surface and mineral estates of land.
UNDERSTANDING TEXAS LANDOWNERS’ “BUNDLE OF RIGHTS”
One of a property owner’s core rights is the right to transfer property—in the case of real property, a legal unit of ownership called an “estate.” See Evanston Inc. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 383 (Tex. 2012) (listing core rights in a property owner’s bundle of rights); Averyt v. Grande, Inc., 717 S.W.2d 891, 894 (Tex. 1986) (an estate is “a legal unit of ownership in the physical land”).
The Supreme Court of Texas has referred to property ownership as a “bundle of rights.” See, e.g., Canyon Reg’l Water Auth. v. Guadalupe-Blanco Water Auth., 258 S.W.3d 613, 618 (Tex. 2008); see also Michael A. Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 Harv. L. Rev. 621, 666 (1998) (defining private property as a core bundle of rights). The “bundle of rights” concept suggests that “property” does not refer to a thing but rather to the rights between a person and a thing. Jesse Dukeminier & James Krier, Property 86 (3d ed. 1993) (“For lawyers, if not lay people, property is an abstraction. It refers not to things, material or otherwise, but to rights or relationships among people with respect to things.”).
“[O]wnership of private property includes the possibility that an individual can control all or most of the core bundle.” See Heller, 111 Harv. L. Rev. at 666-67. Some of the key rights in American jurisprudence that make up the bundle of property rights include the rights to possess, use, transfer and exclude others. Kaiser Aetna v. United States, 444 U.S. 164, 176 (1979); United States v. Gen. Motors Corp., 323 U.S. 373, 378 (1945).
Scholars have observed that there are eleven (11) core rights in the bundle of property rights:
(1) the right to exclusive possession;
(2) the right to personal use and enjoyment;
(3) the right to manage use by others;
(4) the right to the income from use by others;
(5) the right to the capital value, including alienation, consumption, waste, or destruction;
(6) the right to security (that is, immunity from expropriation);
(7) the power of transmissibility by gift, devise, or descent;
(8) the lack of any term on these rights;
(9) the duty to refrain from using the object in ways that harm others;
(10) the liability to execution for repayment of debts; and
(11) residual rights on the reversion of lapsed ownership rights held by others.
ESTATES IN LAND MAY SEVERED – WITH SOME TRANSFERRED AND OTHERS RETAINED
A property owner is free to retain all rights in a piece of real estate for himself or herself, or else sever the sticks from one another and distribute individual rights in whatever fashion or combination he or she so chooses.
Lightning Oil Co. v. Anadarko E & P Onshore, L.L.C., 520 S.W.3d 39, 48 (Tex. 2017); see also Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53, 60 (Tex. 2016):
“[A] landowner may sever the mineral and surface estates and convey them separately.”
THE MINERAL ESTATE DEFINED
“In Texas, the mineral estate is comprised of five severable rights: ‘1) the right to develop, 2) the right to lease, 3) the right to receive bonus payments, 4) the right to receive delay rentals, and 5) the right to receive royalty payments.'” Hysaw v. Dawkins, 483 S.W.3d 1, 9 (Tex. 2016) (quoting French v. Chevron U.S.A., Inc., 896 S.W.2d 795, 797 (Tex. 1995)).
Notably, none of these rights associated with the mineral estate relate in any way to the right to capture, produce, use, sell or lease groundwater. This is because the mineral and water estates associated with land in Texas are legally distinct.
TEXAS LAW TREATS WATER AS A SEPARATE “ESTATE” WHICH, UNLESS SEVERED, CONVEYS WITH THE SURFACE ESTATE OF LAND
With respect to water, the surface estate owner, who owns all groundwater in place beneath the surface of the land, can sever and convey an interest in the groundwater similar to such severing of a mineral interest. See Edwards Aquifer Auth. v. Day, 369 S.W.3d 814, 831 (Tex. 2012); see also Coyote Lake Ranch, 498 S.W.3d at 63.
However, water—unsevered by express conveyance or reservation—has long been held a part of the surface estate in Texas. Robinson v. Robbins Petroleum Corp., 501 S.W.2d 865, 867 (Tex. 1973) (“[T]he water itself is an incident of surface ownership in the absence of specific conveyancing language to the contrary.”).
Underground water is part of the surface estate, and unless severed by reservation or conveyance, it belongs to the owner of the surface. See Corpus Christi v. Pleasanton, 154 Tex. 289, 276 S.W.2d 798 (1955); Texas Co. v. Burkett, 117 Tex. 16, 296 S.W. 273 (1927).
SINCE THE WATER ESTATE IS LEGALLY DISTINCT FROM THE MINERAL ESTATE RESERVING MINERALS DOES NOT RESERVE GROUNDWATER
A. TEXAS COURTS HAVE DETERMINED THAT WATER DOES NOT WALL WITHIN THE DEFININTION OF “MINERALS”
Water is not “a thing of like kind to oil and gas.” Fleming Found. v. Texaco, Inc., 337 S.W.2d 846, 852 (Tex. App.—Amarillo 1960, writ ref’d n.r.e.). As such, a grant of “oil, gas and other minerals” does not include a conveyance of water. To be sure, unless water (or subsurface water) is expressly reserved or conveyed, it remains an unsevered part of the surface estate. Sun Oil Co., 483 S.W.2d at 811; Pfluger v. Clack, 897 S.W.2d 956, 959 (Tex. App.—Eastland 1995, writ denied); Fleming Foundation, 337 S.W.2d at 852. Fleming Foundation v. Texaco, Inc., 337 S.W.2d 846 (Tex. Civ. App. 1960, writ ref’d, n.r.e.) (water is not a “mineral” within the phrase “all oil, gas and other minerals” in an oil and gas lease.).
a grant of “oil, gas and other minerals” does not include a conveyance of water. To be sure, unless water (or subsurface water) is expressly reserved or conveyed, it remains an unsevered part of the surface estate.
B. GRANTOR’s MISTAKEN BELIEF THAT A RESERVATION OF MINERALS ALSO RESERVED GROUNDWATER DOES NOT SAVE THE DAY
Sometimes a Grantor-seller will assert that all parties intended for the seller to retain the groundwater rights, and that the failure in a deed to expressly reserve them creates a reservation by implication. This is not a compelling position because Texas law is clear that reservations must be express and cannot rise by implication.
First, reservation of any estate in land must be express, An instrument conveying land in fee simple transfers both the surface estate and the mineral estate, unless the instrument contains a reservation or expresses a contrary intention. Hysaw, 483 S.W.3d at 8 (citing Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543, 544 (Tex. 1937)). A reservation must be stated in clear and specific language. Piranha Partners, 596 S.W.3d at 748 (explaining that “any ‘reservation‘ must be ‘by clear language’ and cannot be implied”); see, e.g., Montfort v. Trek Res., Inc., 198 S.W.3d 344, 357 (Tex. App.—Eastland 2006, no pet.) (holding deed’s reservation of mineral interest did not reserve cattle guards to lessee because the deed “did not specifically reserve the cattle guards in the reservation paragraph.” Generally,, a conveyance deed’s mineral reservation is “insufficient” to reserve or detach surface rights. Lightning Oil Co. v. Anadarko E&P Onshore, LLC, 520 S.W.3d 39, 52-53 (Tex. 2017).
Second, Texas law disfavors reservations of rights in land. Therefore, reservations cannot arise “by implication.” Perryman v. Spartan Tex. Six Cap. Partners, Ltd., 546 S.W.3d 110, 119 (Tex. 2018). ).
TAKEAWAY
Generic reservations of mineral interests contained in deeds (such as the following example) will not operate as a seller-grantor’s reservation of water rights
“There is hereby reserved unto GRANTORS, their heirs and assigns, of any and all of the remaining interest in and to all oil, gas and other minerals in, on, under and that may be produced from the hereinabove described real property;
Sellers that desire to reserve water rights when selling the surface of their land should include a clause that clearly reserves those rights, separate and apart from any reservation of mineral interests.
