Using your residential property for a business reminds me of the importance of knowing the coverage your homeowners policy provides and the importance of business premises insurance.  Reading and understanding all of the language in a homeowner’s or business liability  insurance policy are not formalities to be skipped over while searching for the signature line.  As with any contract, the fine print can have real and lasting consequences, and its contents will control over any contradictory verbal assurances.  Taking the time to understand the terms of their policies might have headed off bad outcomes for homeowners in two recent cases.

Joan bought property consisting of a home, two barns, and other outbuildings.  She also purchased a homeowners’ insurance policy that excluded coverage for any nondwelling structure that was rented out “unless used solely as a private garage.”  Joan rented the barns to a commercial marina, which used them for storage of customers’ boats.  When one of the barns collapsed due to a storm, Joan submitted a claim for loss of the barn.

The insurer denied coverage, prompting Joan to point out that the rental exclusion should not apply because the marina was using the barn as a “private garage.”  Her point made sense as far as it went, but the insurer won because of a separate exclusion from coverage for any nondwelling “used in whole or in part for business purposes.”  Joan’s main occupation was a financial analyst, and she brought in only a few thousand dollars by renting out the barn.  But all that was necessary for the business purposes exclusion to apply was that the insured regularly engage in the conduct with an intent to profit.

It was significant for the court that, by failing to disclose her conduct, Joan had prevented the insurer from knowing the risks it was insuring.  The purpose of a business pursuits exclusion, after all, is to rule out coverage for a whole set of risks and liabilities flowing from business activity.  It did not matter that the damage to the barn was not caused by the boats that were stored there for profit.

Many of you may have seen or received advertisements for identity theft coverage.  However, if you review your homeowners insurance policy, you may find that it contains coverage for identity fraud expense coverage.  Depending on your specific policy, this could cover credit card and identtity fraud related to the title to your property.  Before signing up for identity theft, sit down and read your current homeowners policy.

You may be surprised to find that you have coverage for loss of refriderated products as well.  With some of our weather events, we lose power.  When this loss of power is extended, then you may lose that deer meat you harvested or that calf you had butchered.  If you have the right kind of coverage in your homeowners policy, you will be covered for these losses.

Before a storm effects you, sit down with your insurance agent to discuss and make sure you have the coverage you want.  When entering a contract, particularly one prepared or furnished by another, it is a good idea to review the document carefully.  A better practice would be to have your attorney review the document for you.  Do not put yourself in the position of reviewing your contract after a problem or claim has arisen.  It may be too late.

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In Texas, water rights depend on whether the water is groundwater or surface water.

Generally, Texas law has held that groundwater belongs to the landowner. Groundwater is governed by the rule of capture, which grants landowners the right to capture the water beneath their property. The landowners do not own the water but have a right only to pump and capture whatever water is available, regardless of the effects of that pumping on neighboring wells.

Surface water, on the other hand, belongs to the state of Texas. It can be used by a landowner only with the state’s permission.

Groundwater

Water found below the earth’s surface in the crevices of soil and rocks is called percolating water or, more commonly, groundwater. Texas groundwater law is judge-made law, derived from the English common law rule of “absolute ownership.” Groundwater belongs to the owners of the land above it and may be used or sold as private property. Texas courts have adopted, and the legislature has not modified, the common law rule that a landowner has a right to take for use or sale all the water that he can capture from below his land.

Because of the seemingly absolute nature of this right, Texas water law has often been called the “law of the biggest pump.” Texas courts have consistently ruled that a landowner has a right to pump all the water that he can from beneath his land regardless of the effect on the wells of adjacent owners. The legal presumption in Texas is that all sources of groundwater are percolating waters as opposed to subterranean rivers. Consequently, the landowner is presumed to own underground water until it is conclusively shown that the source of supply is a subterranean river.

The law with respect to ownership of subterranean rivers is not settled in Texas. Both stream underflow and subterranean rivers have been expressly excluded from the definition of underground water in Section 52.001 of the Texas Water Code.

The practical effect of Texas groundwater law is that one landowner can dry up an adjoining landowner’s well and the landowner with the dry well is without a legal remedy. Texas courts have refused to adopt the American rule of “reasonable use” with respect to groundwater.

Winds of change are blowing with regard to groundwater.  The case of Cactus Water Services LLC v COG Operating LLC is now before the Texas Supreme Court.  At the root of the case is who owns produced water.  This case will determine whether or not produced water from oil and gas drilling belongs to the landowner.

Produced water is the water that is comes back up out of the well bore as the well is completed.  Produced water is highly concentrated with salt and chemicals from the fracking process, thus making it harmful to fresh groundwater supplies as well as fields and pastures used for agricultral production.

Produced water must be handled carefully to make sure it does not spread out on the surface and leach or migrate back into the ground.  That much salt on property will kill the grass for a long period of time.  Thus, produced water has been a 100% waste product and almost all of it has been traditionally, injected back into deep formations through injection wells.

Technological advances have transformed  produced water from a waste product into a potentially valuable resource.  Therefore, now we have disputes over ownership of this water.

The importance of Cactus Water Services LLC v COG Operating LLC is that the Texas Supreme Court (TSC) will now decide whether this produced water belongs to the landowner or the oil and gas company.  Over 14 briefs have been filed with the TSC from different entities.  Some on behalf of the oil and gas companies and some on behalf of the landowners.

You don’t have to wait and see how the TSC answers this issue.  You should be thinking ahead, particularly if you enter new oil and gas leases.  These leases should have provisions clearly addressing the ownership of produced water and any associated royalties.  Even if the TSC determines the oil and gas companies own the produced water, there is a way to contract in your oil and gas lease to ensure that you, the landowner, get a royalty and a revenue back.

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While the monetary compensation is certainly an important factor for a landowner to consider, the nonmonetary  terms of the easement may be more important and more valuable.  Therefore, it is imperative to document any statement or promise made by the company seeking the pipeline into a written agreement.

Each property is unique, and the following considerations may not apply the same way to different properties because of their specific use and characteristics.  While this list is based on a pipeline easement, these terms may also be helpful in negotiating other easements, such as those for electric or transmission lines   (Entergy Reedy Creek project), water, wastewater, drainage, or related infrastructure easements.

I will start with a money saving tip.  Because most attorneys bill by the hour, a client can save considerable fees by doing as much legwork as possible before going to the attorney’s office.  For example, a landowner could collect necessary documents such as the legal description or plat of the property, saving the attorney the time of locating that information.  Another time saver would be for the landowner to prepare a draft of the easement agreement or a list of terms they desire.  This will save time when sitting down with the attorney.

Check on Eminent Domain Authority:

Often the company seeking the pipeline will tell the landowner they have the ability to obtain what they want through eminent domain.  However, you should check to see if the company is validly registered with the State Comproller’s office as having eminent domain power.  Ask the company representative for a copy of the statute that grants them eminent domain power and evidence supporting their claim as a common carrier.  If it is a transmission line, obtain a copy of the company’s Certificate of Convenience and Necessity from the Public Utility Commission.  This will explain what condemnation power the company has and may provide additional information about the proposed project.

Determine Compensation:

Generally, payment is based per foot, per acre or per rod (a rod is 16.5 feet) of the pipeline.  Consider seeking payment per square foot rather than per foot or per rod  to be adequately compensated for the entire area the company will use.  It is common for the company to seek a temporary work area, as well, and you should seek compensation for this temporary work area.

It is important to know that Texas courts recognize remainder damages for the decreased value of the remainder of the property outside of the easement strip.  For instance, if a pipeline splits a 10 acre tract, the acreage remaining outside the easement will likely be worth less per acre than if the 10 acres were sold as a whole.

You should also discuss the payment’s tax implications with your CPA or financial advisor.  How the payment is described or structured will make a difference.

The following list of key points may be helpful:

• Seek a Specific Easement
• Seek a Nonexclusive Easement
• Limit Easement to One pipeline
• Determine Pipeline Diameter
• Require a Specific Pipeline Depth
• Request Payment for Damages
• Have a Timber Management Company or Agricultural Consultant evaluate the property
• Have Property Appraised
• Specify Fencing Requirements
• Include Repairs to existing roads
• Determine Maintenance requirements
• Define when the easement will terminate
• State Requirements for Removing Pipe and Facilities
• State Remedies for Violating Agreement
• Include Liability and Indemnification Provisions
• List Landowner as “Additional Insured”
• Do Not be responsible for Warranty of Title
• Limit Terms of Transferability
• Request a Most-Favored-Nations Clause
• Use Choice of Law provision
• Include a Forum Clause

Finally, a licensed attorney familiar with easement negotiation issues should review all pipeline easement agreements BEFORE signing.  Although hiring an attorney who specializes in representing landowners in these type of transactions may be an additional cost, it could save money in the long run by preventing a dispute from arising due to an unclear or inadequate easement agreement.  Additionally, the fee arrangement with attorneys in these matters is usually a contingency fee agreement.  This means the attorney is paid based on the increased amount of compensation they produce for the landowner who’s property is being taken.  So, no cost up front.

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A landlord and tenant relation exists between a landowner as landlord and another party occupying the landowner’s real property as tenant.  With this relationship come certain duties and responsibilities.

The relationship is always created by contract, but the contract may be either verbal or written.  Additionally, the term of the lease can vary from month to month, semester to semester or school year to school year.

Most lease agreements involve a security deposit.  A security deposit is any advance of money, other than an advance payment of rent, that is primarily intended to secure performance under a lease of a dwelling.  A landlord has the duty to refund the security deposit to the tenant on or before the 30^th day after the date the tenant surrenders the premises.  A landlord may be liable for withholding  the security deposit in bad faith in certain situations.  This could subject the landlord to monetary damages amounting to three times the amount of the deposit  and the tenant’s reasonable attorney’s fees.   Additionally, a landlord is prohibited from retaining any portion of a security deposit to cover normal wear and tear.  Finally, for those landlords who may use written leases stating that the return of the security deposit is contingent upon advance notice of surrender of the premises, then be aware that such language must be underlined or printed in conspicuous bold print in the lease.  So landlords should be very careful when dealing with the return of a tenant’s security deposit.

Landlords should also inspect their security devices.  Texas law requires certain security devices be installed on leased premises.  Leased premises includes rooms in a dormitory or rooming house, mobile home, single family house, duplex, triplex, apartment or condominium.  Windows and doors have certain requirements depending on their design and year of construction.  For example, conventional, sliding and French doors all have different requirements.

Another little known fact is that landlords must disclose the name and address of the holder of record title, according to the deed records in the county clerk’s office, of the dwelling rented by the tenant.  Failure to comply  with this could result in the landlord being liable for one month’s rent plus a monetary penalty, court cost and attorney’s fees and termination of the lease.

In Texas a landlord has no duty to make repairs in the absence of a covenant or agreement to do so.  A tenant’s main remedy for breach of a landlord’s express covenant to repair is an action for the recovery of damages resulting from the breach. Generally, the breach does not authorize a tenant to rescind the lease contract or enable a tenant to escape liability for the payment of rent. The tenant may, however, vacate and relieve himself or herself from liability for further rent when, as a result of the breach, the premises become untenantable or unsuitable for the purposes for which they were rented.  A landlord’s failure to provide a promised service or facility will enable the tenant to recover damages due to such failure.

When the tenant breaches the lease agreement, then the landlord may begin a process known as eviction.  This involves filing a lawsuit.  Such lawsuits are filed in the Justice of the Peace court that serves the area where the property is located.  Unless you are familiar with such suits, you should contact an attorney to assist you.

Landlord and tenant relationships can be advantageous for both the landlord and the tenant.  However, if you are a landlord, or tenant, and things go wrong you would be wise to contact an attorney.  Doing so could save you from a more costly result down the road.

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The amendment gives Texans the constitutionally protected right to engage in farming, ranching, timber production, horticulture and wildlife management.  The reasoning behind the amendment was explained as helping to protect our future food security in Texas, and the need to do so by preventing overregulation of agricultural practices.

Separate from the constitutional amendment is the Texas Right to Farm Act.  The Right to Farm Act has been around since 1981, but was amended by the legislature in 2023.  The purpose of the Right to Farm Act is to support the development and improvement of the state’s agricultural lands to produce food or other agricultural products.

The Right to Farm Act works by providing support or defense for property owners in several different scenarios, including lawsuits against them by other persons for nuisance and related restraint actions.  It also provides protections from state or local regulations that prohibit their activities.  Formerly, it was only a defense to a nuisance action, but in 2023 it was expanded to any other action to restrain the agricultural operations.

For properties within city limits, the 2023 updates to the act limit a city’s ability to restrict agricultural activities within the city’s boundaries.  Any limitations by a city must meet certain standards first and the purpose of the limitation cannot be available through less restrictive means.  Then, the requirement must be necessary for protecting people residing in the immediate vicinity or on public property in the immediate vicinity from certain dangers.

To apply, there must be an agricultural operation, which is defined as:

(A) cultivating the soil;

(B) producing crops or growing vegetation for human food, animal food, livestock forage, forage for wildlife management, planting seed, or fiber;

(C) floriculture;

(D) viticulture;

(E) horticulture;

(F) silviculture;

(G) wildlife management;

(H) raising or keeping livestock or poultry, including veterinary services;

(I) planting cover crops or leaving land idle for the purpose of participating in any governmental program or normal crop or livestock rotation procedure; and

(J) the commercial sale of animals

That operation must be operating and remain substantially unchanged for one year or more prior to the lawsuit.

While development across the State of Texas is booming, so are efforts to preserve our farm and ranch heritage and values.  The future is unknown on what will happen with so much acreage around the State, but in the current development targeted areas we are at least seeing efforts using these tools to keep and preserve some of what Texas is known for – wide open spaces and the farm and ranch lifestyle.

Nothing in this column should be construed as permission to put a chicken coop in your yard at Elkins Lake.  Subdivisions still have restrictions that must be followed.

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The information in this column is not intended as legal advice but to provide a general understanding of the law.  Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.

Life is unpredictable and certain events can have a significant impact on your estate plan. It’s a misconception that once you’ve created your estate plan, you can just forget about it. It’s important to consider how common life changes can affect your existing estate plan.

Birth of a Child or Grandchild

Many parents create their estate plan after their first child is born. But if their plan only includes their first child, the second child might not get their fair share without going to court. That’s why it’s important for parents to update their estate plan after each subsequent child is born.

Similarly, if a grandchild is not included in the grandparents’ estate plan, they may not be able to receive any of the benefits or opportunities that the grandparents wanted them to have. This could happen because of the family’s structure or how the estate plan was written.

Death of a Family Member

When creating a will or trust, different people play different roles: the person making the document (Testator for a will or Settlor for a trust), the people who will receive something from it (beneficiaries), and the people responsible for making sure the instructions are followed (executor in a will, trustee in a trust).

If any of these people pass away, it can impact the estate plan. For example, if a beneficiary dies, their share may go to someone else or their own descendants. It’s important to review your estate plan to ensure your wishes are still carried out.

It is also important to have backup people in place in case the person you named as the personal representative, executor, or successor trustee is unable to carry out their duties (even if it’s due to passing away before you). If you didn’t name any backups, then your loved ones may have to choose someone to take over, or a judge may have to decide who should be appointed. This could be especially difficult for families who tend to have conflicts.

Purchasing a New Home

If you have a trust-based estate plan, it’s important to make sure that all of your property and accounts are owned by the trust or named as a beneficiary. When you buy a new home, you need to remember to transfer it into the trust to avoid probate.

When you buy real estate, the title company may assume that you are buying it as an individual or as a married couple, so you need to tell them that you want to buy it in the trust’s name. If you forget to do this, you will need to contact your estate planning attorney to transfer the property into the trust after a successful transaction.

If you don’t put your property into your trust, then after you pass away, it will either go to the person who co-owns it with you (if you co-own it in a certain way), or it will have to go through a court process called probate if you owned it individually or as a tenant-in-common. It’s another Risk of Neglecting Your Estate Plan.

Marriage or Divorce

Getting married is an exciting time, but it can also be complicated, especially when it comes to money and property. You and your spouse may own separate property, as well as property that you accumulate together during your marriage. To avoid confusion and ensure that your wishes are carried out, it’s important to have an estate plan that outlines what property is separate and what is joint, what you want to leave to your spouse, and who should make decisions for you if you are unable to do so. If you don’t update your estate plan after getting married, a court may have to get involved to determine how your property should be distributed and who should make decisions for you.

If you get divorced, though, your wishes may change. To avoid any confusion, it’s important to update your estate planning documents after your divorce is finalized. This will ensure that your former spouse is not involved in your estate plan, even if they were previously named as a decision maker or beneficiary. It’s best to work with an estate planning attorney to update your documents and choose new decision makers and beneficiaries.

Don’t Risk of Neglecting Your Estate Plan

An estate planning attorney can review any estate planning documents you have, whether from years ago or a prior marriage, including Wills, trusts, powers of attorney and beneficiary designations, and then help you create new documents for your current situation.

Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C.  He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

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If you own real estate, you may own mineral rights as well.  I say may because it is not a given fact that you own the mineral rights to your property. It is possible that the mineral interest were sold previously.  This is an important consideration because if you enter an oil and gas lease and later it is learned you have been overpaid, then depending on the oil and gas lease you signed, the producer can demand you repay the overpayment years later.  Just saying you spent the money will not stop them from filing suit.    

Most oil and gas leases presented to mineral owners are known as the Producers 88.  These leases can be easily identified because in the upper lefthand corner will be printed PROD 88.  The problem with the Producers 88 is not what it contains, but what it is vague about.  It was written for the oil and gas industry and is very well written in THEIR favor. 

One matter that is not vague is a statement that you the lessor are warranting the title to the mineral interest.  This simply means you guarantee you own all the mineral interest.  However, it is the Landman who is presenting you the lease that has done the research.  He works for the lessee or oil and gas company, not you.  He is paid by the oil and gas company, not you.  If his research is wrong guess who is liable, you.  This is just a small example of why you need to be very careful when signing an oil and gas lease. 

I have long been taught, and through personal experience have learned, the best thing to sign is anything but a Producers 88 lease.  

Too many people are drawn into signing bad leases because the Landman has waived a Bonus Check in front of them.  A Bonus Check is payment just for signing the oil and gas lease.  While this money can be tempting, it is carefully derived to entice you to sign without thinking about what you are signing and what rights you are giving up.  Additionally, many signed leases are simply then sold to another party for more money.  Meaning you left money on the table. 

Each mineral owner has five (5) basic rights as follows:

1) The right to sign a lease

2) The right to explore for minerals

3) The right to receive a bonus for signing

4) The right to receive delay rentals

5) The right to receive a percentage of the production.

Within these rights are many considerations.  For example, with the advent of new drilling technology companies now are able to drill deeper, into formations they have not been able to before and horizontally.  If you sign a Producers 88 lease, the oil and gas company has the right to drill to the center of the earth.  However, you could negociate a different payment based on depth and formation.  You could even negociate a minimum royalty payment.  

If you are also the surface owner, then you have many additional rights as well.  These include how your surface is used,  where access is located, the type of access, where the drill site is located and who may enter your property and what they may bring.  Any guess as to who has the advantage on all these points in the Producers 88?  Would you want a well site right up against your home or barn?  How about an employee of the oil and gas company shooting that prize deer you have been watching?

As with any written document, the devil is in the details.  There is not enough room for me to go over all of the details that should be considered and addressed when negotiating with an oil and gas company. Suffice to say, the lease document I draft and recommend is 50 plus pages and addresses not only your mineral rights, but your surface rights as well. The producers 88 is usually 2 pages.  
When dealing with mineral interest and oil and gas leases the terminology used is often foreign to most individuals and the cards are stacked against you.  Therefore, if you are approached by a Landman wanting to give you a “bonus” to sign a lease, do not feel alone.  Remember, that Landman is acting in his own best interest and not yours.  He is trying to get a deal done as quickly as possible so that he, or his company, may secure the minerals and often, turn around and sell the lease to another.  You should seek the advice of an attorney familiar with Oil and Gas Leases to explain all your rights and how to negotiate the best lease.

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By Sam A. Moak

Co-Ownership of Property in Texas

The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.

 Occasionally I run into situations between unmarried individuals owning property together. This can be a result of two or more people purchasing property together, but more often it is a result of two or more people inheriting property from a deceased individual.

Attorneys often face co-ownership issues when advising on inheritance and probate avoidance. Inheritance in such cases may be determined by express language in a deed or a last will and testament, or in the absence of either, by intestacy provisions of the Estates Code. In some circumstances a co-owner may have no survivorship rights at all.

Texas real estate may be owned individually or jointly. Joint owners are called co-owners or cotenants, and the

relationship is known as a cotenancy. Texas law recognizes three forms of cotenancy: community property, joint tenants with the right of survivorship (JTWS), and tenants in common (TIC). In this article, I will focus on TIC.

Co-ownership, regardless of the type, gives each cotenant the right to use, occupy and possess each part of the property, but not exclusively. Cotenants may not exclude other cotenants from possessing, using or occupying the same part or parcel. This undivided right of possession forms the basis of the cotenancy relationship. Cotenants may terminate the cotenancy at any time by

partitioning, which changes co-ownership to sole ownership. Partitioning divides the property according to value, not area, and may occur voluntarily or judicially. Voluntary partitioning requires an agreement among the cotenants to divide the property in a certain manner. After

exchanging deeds, each former cotenant owns a certain parcel outright.

 Judicial partitioning, on the other hand, is done by the court. If the court finds the property cannot be divided fairly and

equally, it orders the property to be sold with the proceeds divided among the owners according to their undivided interests. Judicial partitioning is a time-consuming, expensive process. Cotenants have the right to transfer their undivided interests to a third party without the other cotenants’ consent.

 Although co-owners share the nonexclusive right to use and possess the property, the legal relationship ends there. No cotenant is a legal partner or agent of the other. Except in limited circumstances, no cotenant has the authority to bind another cotenant to an agreement or a debt. No fiduciary duty exists among the cotenants unless an express agreement exists. However, cotenants do share some responsibilities.

This is often where problems arise between cotenants.

 Individually and collectively, cotenants have a duty to protect and preserve the property. A cotenant who expends funds

for this purpose is entitled to reimbursement from the others for their proportional share. Equity gives the cotenant making the expenditures a lien on the property to enforce repayment.

 Similarly, cotenants have a duty to preserve and protect the property from waste. Waste constitutes the unauthorized or wrongful destruction or severance of improvements, trees, minerals or other tangible property from the property. Waste does not include ordinary wear and tear. The party committing the waste becomes liable to the others for damages.

 Cotenants are responsible for the payment of common debt, such as the mortgage and property taxes. A cotenant paying a disproportionate share of these debts may recover the costs from the others. Again, equity holds each cotenant equally liable, and all are bound to contribute proportionately according to their undivided interest. This raises some questions. Assume one cotenant pays all the property taxes for years and the others refuse to reimburse him or her. Rather than sue, the cotenant quits paying the taxes and purchases the property at the tax foreclosure sale. Does this give the cotenant sole title to

the land? The answer is no. Texas law presumes a cotenant purchasing the property at a tax sale does so for the benefit of all the co-tenants. The purchaser simply reinstates the co-tenancy relationship as it existed before the tax sale.

 Today’s column states just a few examples of the issues that can arise in co-tenancy. Therefore, if you find yourself in a co-tenancy relationship that is not working out, then you should consult an attorney for assistance.

 Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

The post Co-Owning Property in Texas May Have Unforseen Issues appeared first on Moak & Moak, P.C. -Attorneys At Law.

By Sam A. Moak

Estate Planning with Business Entities

The information in this column is not intended as legal advice but to provide a general understanding of the law.  Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstance.

When people think of estate planning, the first ideas that typically come to mind are of wills, trusts, powers of attorney, and guardianship arrangements. Traditionally, those instruments have been closely associated with estate planning simply because they are legal tools exclusively dedicated to helping people pass on their assets or otherwise ensure that loved ones are cared for.

While the traditional tools work very well at accomplishing their designated tasks, you might be surprised to learn that they are not the only tools available for estate planning.  Depending on your particular assets and desires, then the use of a limited partnership, limited liability company, corporation may be right for the situation.

 All of the business entities mentioned above are common when a business is owned by different individuals.  While the primary purpose for forming one of these business entities is for liability protection, they also provide for a means to manage the business and eventually shift ownership.

 Limited partnerships have general and limited partners, the general partner(s) are responsible for management and decision making.  The limited partners are investors or owners with no management or decision making authority.

 Limited liability companies and corporations have either membership holders or shareholders.  Typically the membership/shareholder(s) elect the officers who are responsible for management or decision making.  Thus, the membership/shareholder(s) with the greater number of membership interests or shares control.

 The interests in all of these forms of business entities are something that can be transferred over time, therefore making a perfect vehicle for parents or grandparents to maintain control over assets owned by the business entity until they pass away or are ready to shift the majority of the ownership over to the next generation for control.  An additional benefit is that the family also has liability protection. So, using a family owned ranch/farm for example, if one family member is sued or found liable in some accident, then the assets of the other family members in ranching/farming business with them are not susceptible to being taken.  Another benefit is that incidents such as incapacity, death or divorce, can be addressed in the governing documents.  This means that should one of these events occur, there is a plan for how the property owned by the business entity is transferred.

 If you are thinking of working on your estate plan, then perhaps one of these business entities is right for you.  Or maybe you are a candidate for a more traditional plan.  In either case, you should sit down with an attorney familiar with traditional plans and business entities to find out what estate plan is best for your needs.

 Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C.  He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

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By Sam A. Moak

Seek Advice Before Signing Oil & Gas Leases

 The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.

 The Huntsville-Walker County Chamber of Commerce and the Texas AgriLife Extension Service in Walker County sponsored a very good presentation last week on oil and gas leases. Judon Fambrough, a professor with Texas A&M University, gave the presentation.  I estimate over 100 people and myself were in attendance.  While it was a subject, I am very familiar with, it was eye opening for most in attendance.  Therefore, I thought it would be a good subject for this week’s column.

If you own real estate, you may own mineral rights as well.  I say may because it is not a given fact that you own the mineral rights to your property.  It is possible that the mineral interest was sold previously.  This is an important consideration because if you enter an oil and gas lease and later it is learned you have been overpaid, then depending on the oil and gas lease you signed, the producer can demand you repay the overpayment years later.  Just saying you spent the money will not stop them from filing suit.

 Most oil and gas leases presented to mineral owners are known as the Producers 88.  These leases can be easily identified because in the upper lefthand corner will be printed PROD 88. The problem with the Producers 88 is not what it contains, but what it is vague about.  It was written for the oil and gas industry and is very well written in THEIR favor.

 One matter that is not vague is a statement that you the lessor are warranting the title to the mineral interest.  This simply means you guarantee you own all the mineral interest. However, it is the Landman who is presenting you the lease that has done the research.  He works for the lessee or oil and gas company, not you.  He is paid by the oil and gas company, not you.  If his research is wrong guess who is liable, you.  This is just a small example of why you need to be very careful when signing an oil and gas lease.

 I have long been taught, and through personal experience have learned, the best thing to sign is anything but a Producers 88 lease.

 Too many people are drawn into signing bad leases because the Landman has waived a Bonus Check in front of them.  A Bonus Check is payment just for signing the oil and gas lease. While this money can be tempting, it is carefully derived to entice you to sign without thinking about what you are signing and what rights you are giving up.  Additionally, many signed leases are simply then sold to another party for more money.  Meaning you left money on the table.

 Each mineral owner has five (5) basic rights as follows:

1) The right to sign a lease

2) The right to explore for minerals

3) The right to receive a bonus for signing

4) The right to receive delay rentals

5) The right to receive a percentage of the production.

 Within these rights are many considerations.  For example, with the advent of new drilling technology companies now are able to drill deeper, into formations they have not been able to before and horizontally.  If you sign a Producers 88 lease, the oil and gas company have the right to drill to the center of the earth.  However, you could negotiate a different payment based on depth and formation.  You could even negotiate a minimum royalty payment.

 If you are also the surface owner, then you have many additional rights as well.  These include how your surface is used, where access is located, the type of access, where the drill site is located and who may enter your property and what they may bring.  Any guess as to who has the advantage on all these points in the Producers 88? Would you want a well site right up against your home or barn?  How about an employee of the oil and gas company shooting that prize deer you have been watching?

 As with any written document, the devil is in the details.  There is not enough room for me to go over all of the details that should be considered and addressed when negotiating with an oil and gas company.  Suffice to say, the lease document I draft and recommend is 50 plus pages and addresses not only your mineral rights, but your surface rights as well.  The producers 88 is usually 2 pages.

When dealing with mineral interest and oil and gas leases the terminology used is often foreign to most individuals and the cards are stacked against you.  Therefore, if you are approached by a Landman wanting to give you a “bonus” to sign a lease, do not feel alone.  Contact me and I will sit down with you to explain all your rights and how to negociate the best lease.

Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

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