May 12, 2016
DIVISIONS OF PROPERTY OWNERSHIP.
An owner of real property can divide and transfer interests in real property in a number of different ways. Property ownership is frequently analogized to a “bundle of sticks” with each stick in the bundle representing some interest in the property.
Conceptually, real property may be divided:
[1] vertically – by dividing the property into smaller pieces with each owner of a smaller piece having the full set of ownership interests;
[2] horizontally – by conveying ownership of different strata of the property as when the surface estate is severed from the mineral estate;
[3] among multiple owners, so that each owner has anundivided interest in the conveyed property; and
[4] by transferring an interest less than ownership of the property but which grants its owner a right with regard to the property. Each of these types of subdivisions will be discussed below.
A. Vertical Subdivisions of Property.
The simplest property division is the conveyance of the fee ownership of a specific portion of the grantor’s property. In the context of the “bundle of sticks” analogy, it would be as though the bundle had been broken in half, and half of each stick comprising the bundle was transferred away. The law relating to such transfers forms the basis for the courts’ understanding and articulation of more complex conveyances, such as the horizontal divisions discussed Section C, below.
B. Plural Ownership – Co-Tenancy.
More than one person can own the same property at the same time as cotenants. All of the co-tenants own the entire bundle of sticks together, with each having undivided interest in the entire property. Each co-tenant has the absolute right to possess the entirety of the property, and no co-tenant can exclude any of the other co-tenants from the property. If a co-tenant does make economic use of the co-owned property, that cotenant must account to all of his other co-tenants for their share of those profits. That is true even though the co-tenants may not have participated in the profit-making activity.
When property is divided among multiple owners, the ownership interest of each of the co-tenants becomes a separate chain of title to be examined, because each of those interests is subject to further transfer either by deed or by will or through intestate succession.
The absolute right of each co-tenant to use and possess the entire property can obviously result in conflicts among the co-tenants. Kentucky’s statutes (KRS 381.135 and KRS 389A.030) provide a solution to this dilemma in the form of a partition action. Under those statutes, a co-tenant may apply to the courts for a partition of the property. If the property is such that it can be divided equitably and without diminishing the value of each co-tenant’s share, the property will be physically divided. A specific part of the property will be allotted to each co-tenant. If the property cannot be equitably divided in kind (as is the case with most mineral properties) the partition statutes provide for a judicial sale of the property. The proceeds of that sale will be divided among the co-tenants in accordance with their ownership interests.
C. Horizontal Subdivisions of Property.
Real property may be divided horizontally so that different parties own the surface and the mineral interests. The minerals may be further subdivided by conveying the coal, the oil, the gas, and certain seams of coal and/or certain depths or geologic formations to different owners. These severances are all effected by means of deeds in which the grantor either conveys or reserves certain interests out of his fee ownership.
These deeds, and particularly the deed which separates the surface from the underlying minerals, are referred to as “severance deeds.”
The most common initial severance of real property is the separation of the ownership of the surface from the ownership of the underlying minerals. The term “minerals” when used in a severance deed has been interpreted in Kentucky to include oil, gas and related products unless the terms or context of the document require otherwise. Interestingly, in Kentucky the term “minerals” does not include limestone, at least in those areas of the state where limestone is the predominating subsurface material.
In addition to granting the minerals, a severance deed will typically also give the grantee of the minerals specific rights to use the surface for the development of the transferred minerals. The most well-known of these provisions are found in the socalled “broad form deeds” which were used to sever the ownership of hundreds of thousands of acres of property principally in Eastern Kentucky from the ownership of the surface. The broad form deeds were used by property aggregators to acquire vast acreages of minerals. While the most famous and most comprehensive of the broad form deeds - - the “Northern Coal and Coke Deed” - - was used in Eastern Kentucky, similar mineral aggregation occurred in Western Kentucky using similar, if frequently less comprehensive, broad form deeds. The broad form deeds, and specifically the Northern Coal and Coke deed, granted the mineral owner extensive rights to use the surface of the property for the development of the conveyed minerals, and for the development of minerals on other properties. Among the granted surface uses relating to oil and gas granted in the Northern Coal and Coke deed are: (i) the exclusive right to enter upon the land and to drill for oil and gas; (ii) the right to store oil and gas upon the land; (iii) the right to use, divert, and pollute water courses; (iv) the right to build or remove any buildings or other structures; and (v) the right to leave behind any refuse from the wells or mines.
In addition to the long litany of specific surfaces uses granted to the mineral owner, some broad form deeds went further to grant the mineral owner the sole right to grant easements on the property. This “easement granting power” is articulated in some Northern Coal and Coke deeds as follows:
and the exclusive rights-of-way for any and all railroads, tram roads, haul
roads and other ways, pipe lines, telephone and telegraph lines that may
hereafter be located on said land by the parties of the first part, their heirs,
representatives or assigns, or by the party of the second part, its successors
or assigns, or by any person or corporation with or without the authority of
either of said parties, their, or its heirs, representatives, successors or
assigns.
Pursuant to this provision, the mineral owner and not the surface owner, has the sole right to grant an easement across the surface of the property. The purpose of this provision was obviously to prevent the surface owner from granting easements in the surface that would conflict with the grantee’s later development of the coal.
The extent of the rights granted by broad form deeds was the subject of extensive legislation and litigation in the late 1980s and early 1990s. As a result of that activity, Section 19(2) of the Kentucky Constitution provides that surface rights granted in a broad form severance deed will not be sufficient to allow surface mining on that property unless the proponent of the mining shows that surface mining was known and was in use in the area at the time the relevant severance deed was made.
In all other respects, however, broad form deeds are effective in accordance with their terms, and they form the basis for much of the mining and oil and gas development that has occurred, particularly in Eastern Kentucky, since the early 1900s.
Many of the companies that were grantees under broad form deeds in Eastern Kentucky were primarily interested in developing the coal acquired pursuant to those deeds. Consequently, much of the oil and gas that they acquired pursuant to those broad form deeds was conveyed to companies or individuals for separate development.
Hundreds of thousands of acres of oil and gas interests that had been severed pursuant to broad form deeds in Eastern Kentucky were conveyed to RJ Graf in the 1910s and 1920s.
Much of that oil and gas is now controlled by large gas companies. Unlike the broad form deeds, many other severance deeds convey few if any express surface rights. In those cases, the concept of implied or appurtenant rights, discussed in Section II(D)(2), below, would apply. Although interests in oil and gas may be conveyed and severed pursuant to severance deeds, there are some distinctions with regard to the nature of the ownership of oil and gas, in comparison to solid minerals, which are discussed in Section III, below.
D. Easements, Appurtenant Rights and Other Use Rights.
In addition to creating multiple owners of the same property and dividing the property vertically and horizontally, an owner of real property also has the right to convey lesser interests that would entitle or allow another to make use of the property.
These lesser interests can take many forms, but among most common are leases (which will be discussed in more detail in Section IV, below, and in other presentations) and easements.
[1] Easements.
An easement is not an ownership interest in real property. Rather it is a right in one person to use the property of another. Easements may be created by: (a) express grant; (b) prescription of adverse use; (c) necessity; and (d) implication. The most familiar way easements are created is by express grant, and the most familiar type of easement is an access road or passway.
For example, assume that A owns the entire hollow (“Whiteacre”) and a public road borders Whiteacre property at the mouth of the hollow. If A sells B the portion of Whiteacre lying at the head of the hollow (“Blackacre”), B may have no way to access a public road except by going through Whiteacre. In that case, A would typically grant B an easement for a road or passway through Whiteacre. That express grant would be included in the deed from A to B for Blackacre.
In this example, Blackacre would be referred to as the “dominant estate” because it is benefitted by the right to use Whiteacre. Whiteacre would be called the “servient estate” because it serves Blackacre by being used for a road or passway. The easement in Whiteacre is said to be “appurtenant” to Blackacre because it serves Blackacre, and the easement would be conveyed to any grantee of Blackacre.
Easements which do not directly serve or benefit a specific property, such as a gas transmission pipeline right-of-way or an electric transmission line right-of-way, are referred to as “easements in gross.” At common law easements in gross were rights that were personal to the grantee and were not transferable. That situation has changed both by statute and common law, and commercial easements in gross are generally now freely transferable.
An easement may be acquired in the absence of an express grant by prescription, by implication or by necessity. For example, in the situation referenced above, if A did not expressly grant B an easement to cross Whiteacre, an easement might be implied because A conveyed the property to B without any access to a public road.
Under common law and Kentucky case law, the courts would assume that A did not intend to sell B a piece of landlocked property which B could not access. Therefore, the courts will imply a right of access and an easement for B. If a piece of property is landlocked and has no access to a public road, an easement may be granted by a court as a way of necessity. An easement by necessity may be acquired on properties in circumstances other than the grantor/grantee relationship of A and B above.
If a use is made of the property of another for the statutory period (typically fifteen years in Kentucky) and that use is open, notorious, hostile and under a claim of right, the user may obtain an easement by prescription. The requirements for an easement by prescription are the same as those as for adverse possession.
[2] Appurtenant or Implied Surface Rights.
When the first courts first analyzed the consequences of a severance of the surface estate from the mineral estate, they conceptualized the surface and mineral estates as though they were two adjacent pieces of surface property. The courts applied property concepts applicable to adjoining properties to their analysis of the access relationship between the surface and the underlying minerals. Based on the concept of an implied easement or an easement of necessity, the owner of minerals is deemed as a matter of law to have certain rights to use the overlying surface in the development of the underlying minerals.
In general, the mineral owner is entitled to do such things on the surface as are reasonably necessary for the development of the minerals. It may not, however, make those uses wantonly or maliciously. A mineral owner’s implied or appurtenant rights do not extend to using the surface for the development or benefit of minerals other than those covered by the severance deed. For example, the holder of severed oil and gas rights may use the surface of the property for the purpose of installing necessary roads, drilling wells, installing pipelines, tank batteries and other facilities that are necessary for the development of oil or gas from that property. Facilities that serve the development of minerals from other properties could not be constructed on that property pursuant to implied rights.
[3] Other Use Rights.
There are other lesser use rights which may be applicable in the context of severed minerals. One is the profit à prendre which allows the holder to enter the property and to take the benefits from the soil of the property. Some arrangements that are interpreted as being a profit à prendre include: the right to take driftwood, to fish, or to take game. A profit à prendre is non-possessory, and it is irrevocable and is assignable.
A similar interest is a license. A license is typically not exclusive, and it is subject to revocation by the grantor. If, however, a license is coupled either with an estoppel such as an expenditure or reliance or with an ownership interest, then the license may become irrevocable.