OWNERSHIP OF MINERALS, INTERESTS CREATED IN OIL AND GAS LEASES AND ROYALTIES: OWNERSHIP OF REAL PROPERTY

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May 12, 2016


I. OWNERSHIP OF REAL PROPERTY.

A. Patents.
Title to all real property in the United States derives, in the first instance from a sovereign. When Kentucky became a state in 1792, it adopted all of the real property statutes then in effect in the Commonwealth of Virginia, of which Kentucky had formerly been a part. Those statutes provided specific mechanisms for the acquisition of title to real property from the sovereign, and those mechanisms were imported into the law of Kentucky.

In general, the goal of the statutes was to encourage the settlement and development of the vacant lands on western frontier that was then Kentucky. The statutes, first of Virginia and later of Kentucky, allowed individuals to acquire title to real property from the sovereign by means of a land grant or “patent.” Thus, with the application of unlimited time and money, most titles to real property in Kentucky can be traced back to a patent issued by the government of Virginia or Kentucky.1

B. The Patenting Process.
Kentucky’s current statutes relating to the acquisition of title from the Commonwealth are found at KRS 56.194 through KRS 56.240. Although the specific statutes have changed since 1792, the basic process remains largely the same.

[1] Warrants and County Court Orders.
Generally, the process for obtaining a patent under either the laws of Virginia or Kentucky required that the applicant first obtain the right to request ownership of a specific quantity of acreage. Typically this right was in the form of a “Treasury Warrant” which evidenced the applicant’s payment of the requisite per-acre price for a specific number of acres. In addition, Virginia issued “Military Warrants” to soldiers in the French and Indian War and the Revolutionary War.

In 1835 the Commonwealth of Kentucky assigned all lands that were then vacant and unappropriated to the County Court of the county in which the land was located. This authorized the county to sell the vacant and unappropriated land within its boundaries by issuing a “County Court Order,” which had the same effect as a Treasury Warrant.

None of the Treasury Warrants, Military Warrants or County Court Orders specified any particular property to which they attached. They merely entitled the holder to identify and claim vacant and unappropriated lands and to proceed with the appropriation process. While Treasury Warrants and Military Warrants were exercisable in all counties, the holder of a County Court Order could only use that authorization to appropriate lands within the county that issued the Order. A patent issued for property outside the county which issued the County Court Order is invalid. Consequently, it is very important both in evaluating the validity of the patent which forms the basis of the chain of title, and for running the chain of title, to correctly identify the counties in which the property has been located over the years.

The area which is now Kentucky was originally part of a single county of Virginia, “Kentucky County.” Later, while still part of Virginia, Kentucky County was divided into three counties: Fayette, Jefferson and Lincoln. By the time Kentucky became a state in 1792 its area had been divided into eighteen Kentucky counties. Of course, it now has 120 counties made from those eighteen. Thus, any particular piece of real property may have been located within several counties in the past.

Records relating to real property will be located in the county clerk’s office of each county for which it has been a part, and the records in each of those must be checked in performing a title examination. The most comprehensive single source of information about Kentucky’s counties, their locations, their enacting legislation, is a publication which is now out of print called An Historical Atlas of Kentucky by Wendell H. Roan, Sr. This small, but fact-filled book will prove invaluable to anyone involved in mineral title examinations.

[2] Entries and Surveys.
Once an applicant obtained a right to claim land, it was the applicant’s obligation to identify an area of “vacant and unappropriated land”. Each county had an official surveyor. The applicant was required to notify the surveyor of the relevant county of: (a) the source of the applicant’s right to claim real property; and (b) the location of the property the applicant wished to claim. The county surveyor would note this information as an “entry” in his entry book, and that entry was the first step toward appropriating a specific tract of property.
After noting the entry of the claim for a patent in his entry book, the surveyor would ultimately survey a claimed area based on the locations provided by the claimant. The survey was copied into the surveyor’s book, and a copy was given to the claimant. The statutes contained numerous technical requirements for the survey, including that it be witnessed and signed by two disinterested householders of the county.

Failure to comply with those requirements could result in a determination that the patent was void and that the title based on it is invalid.
In the early days of appropriation of property within what is now Kentucky under the Virginia statutes, it was common for claimants (among them Patrick Henry) to send survey parties up the rivers and creeks surveying the water courses.

Those surveys frequently resulted in patent claims which were corridors of property along the water courses and which did not reach to the tops of the adjacent mountains. It was, however, the practice of subsequent settlers to claim from ridge top to ridge top, giving rise to claims of title by adverse possession to the entirety of the hollow.

The applicant was required to deliver the survey to the Land Office for the patent to be issued. The timing of the effectiveness of the patent depended on whether the applicant delivered the survey to the Land Office within the time specified by the applicable statute. If the survey was delivered to the Land Office within requisite time, the patent was effective from the date of the survey. If it was not timely delivered, it was effective from the date the patent issued.

The surveyor was not obligated to ensure that the property included in a survey was indeed vacant and unappropriated. This, and the fact that the surveyors frequently did not actually survey the property on the ground (as evidenced by the perfect shapes of many of the “surveyed” properties) resulted in many overlaps and conflicting claims to properties in Kentucky. Hundreds of reported Kentucky decisions reflect these disputes, and the courts’ efforts to adjudicate the priority of junior and senior patents and claims of adverse possession.

C. The “Ad Caelum” Doctrine.
Once an applicant received a patent from the Land Office, he became the owner of that property in fee. The fee owner is deemed to own the property from the top of the sky to the center of the earth (“Ad Caelum Doctrine”). Consequently, the owner has not only the right to farm, take timber or otherwise develop the surface of the property, but he also had the right to develop its underground mineral resources.

Moreover, in addition to owning, using and developing the entirety of the property, the fee owner also has the right to sell or otherwise dispose of some or all of the property and/or interests therein.

1 Some properties may not lie within the boundaries of a patent. Such titles may derive from possession of the property which has ripened into ownership pursuant to the doctrine of adverse possession.


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