In Texas, land law is not always as simple as it initially appears. One issue that vexes landmen, legal professionals and landowners alike is the matter of life tenancy. Although the granting of so-called "life estates" is not as common as it once was, the matter still arises often enough to warrant discussion. Learn more about how to handle a life tenant and when to apply the Open Mines Doctrine to his or her lease.
What Is a Life Tenant?
Under Texas law, a life tenancy applies to an individual landowner who enjoys rights of ownership and improvement for a specific property for the duration of his or her lifespan. Life tenancies are typically created by deed in the property owner's will and are often used to transfer or appropriate properties within families. It is important to note that a life tenant can transfer or rent his or her property with few restrictions. However, the life tenant cannot transfer or deed the property upon or after his or her death. The original landowner's will typically makes provisions for the property's transfer in the aftermath of the life tenant's death.
What Is a Remainderman?
In Texas, the creation of a life estate generally results in the creation of "remaindermen." This is an archaic term that refers to the parties that stand to inherit the property upon the death of the life tenant. Since remaindermen typically aren't bound by the strictures of a life tenancy, it is not wise for exploration firms, landmen and other interested parties to treat them as equivalent to life tenants.
What Is the Open Mines Doctrine?
The Open Mines Doctrine is a crucial factor in any lease negotiations that involve life tenants or remaindermen. Simply put, the Open Mines Doctrine permits a life tenant to receive royalty payments for production wells that were already in existence at the moment of the tenancy's creation. Royalties from newer wells must be held in trust for the duration of the life tenancy and passed to the remaindermen upon the tenant's death. However, the life tenant does retain the right to receive any interest payments that the trust produces.
A Note About "Voluntary Waste"
The Open Mines Doctrine contains language about the concept of "voluntary waste." Since many landmen and landowners struggle with this concept, it is worth special consideration. Under normal circumstances, "voluntary waste" describes a situation in which landowners willfully devalue a parcel of land by draining it of resources or depriving it of existing improvements.
When applied to life tenants on parcels with significant oil and gas resources, this concept precludes tenants from enjoying equal access to the fruits of new exploration during their tenure. In effect, it is designed to prevent life tenants from depriving "full" landowners of the right to profit from its resources in the future.
Common Circumstances of Application
The nature of life tenancy arrangements favors their use among family members, and it's imperative for landmen and other legal professionals to understand the often sensitive considerations that inform their execution.
For instance, it's common for an individual to set up a life tenancy arrangement for his or her surviving spouse with the expectation that the property will devolve to his or her child or grandchild after said spouse's death. Since remaindermen aren't bound by the terms of leases that come into force after the creation of a life estate, it's crucial to make leases with life tenants as favorable as possible for their successors.
Final Thoughts
Although many landmen practice for years at a time without encountering a life tenant, it's crucial for legal professionals who work in the oil and gas industry to have a working knowledge of how this matter applies within the state of Texas. Those who fail to understand life tenancy and the Open Mines Doctrine risk making preventable mistakes that could have unpredictable ramifications for their clients and careers.
