The Importance of a Chain of Title

Posted by CourthouseDirect.com Team - 30 March, 2016

header-picture

chain_of_title_oil_and_gas.jpg

A chain of title is a document that traces the history of a property’s transfers – it runs from the current owner back to the original owner of the property. For any dispute of property ownership, or other situations requiring documentation of property ownership, a chain of title may need to be created to establish the history of the property in question.

For oil and gas landmen, a chain of title may be necessary to establish the terms of a property title, or rather what royalties may be owed to a previous owner that may never have been properly or formally written out of a deed.

Creating a chain of title is similar to building a family tree: you start with who and what you know and what information is most readily available and work from there. Most title records are kept at public tax offices and will trace back several decades. Many of these records have been transferred to computer interfaces, but microfilms and older archiving may be necessary for long-standing properties.

Researching a chain title can be simplified if the previous owners were included in the current agreement. For example, most deeds begin with a formal description of who currently owns the property and how they came to own it. The chain of title can often be easily traced by researching the previous agreements to establish who the previous grantors were, then confirming how they came to own the property in question.

Research Equals Lowered Risk

The oil and gas industries are inherently risky ventures. There are countless hazards that accompany any oil or gas development project, and chains of titles help to ensure that companies don’t need to worry about legal entanglements from property and royalty agreements before entering already hazardous work.

Oil and gas titles are rarely free from encumbrances (prior obligations to certain parties for use of the property) and defects, such as oversights in defining time frames and the consistency of royalty percentages. Evaluating property titles often involves considering three types of requirements defined by the title:

  • General requirements: These will typically include lease terms and the basic requirements found in any type of title, such as tax considerations, definitions of easements, mortgage details, and affidavits of possession and use.
  • Special requirements: Special requirements are items not typically in general requirements of titles. These may be requirements for spouses to join a lease in light of community property laws, definitions of probate materials, considerations for homestead laws, and definitions for successors.
  • Formal requirements: These requirements are necessitated by the limitations of the title examination process. For example, examiners are hardly ever able to unequivocally determine the authenticity of a title. It may have been incorrectly indexed, improperly delivered, or fraudulently obtained. Formal requirements will outline protections for all involved parties for any foreseeable circumstance that may go unnoticed by an examiner but has a clear impact on the involved parties.

A Chain of Title Is a Necessity for Oil and Gas Landmen

An accurately formed chain of title will make it easier for those examining the title to identify any oversights or defects and protect both the current property owner and their grantee/s. Title examination processes have changed greatly over the past few decades with the rise of digital technology, but having an accurate chain of title remains as important now as it was 100 years ago. The royalties for some properties have now extended to the multitude of descendants of many original land owners, making chains of titles increasingly complex.

Oil and gas landmen need to obtain accurate histories of their land to ensure that they aren’t opening themselves up to liability for unpaid royalties or obligations to preexisting encumbrances.  Building a comprehensive, accurate, and legally sound chain of title is vital for any gas or oil venture. Waiving a requirement may be a necessary risk for some landmen, but this rarely comes without risk unless the terms no longer apply. This is infrequently the case, and erring on the side of caution is always the best course of action for handling title requirements.

Title requirements are borne more from common sense than strict laws defining how they need to be drafted, but oil and gas landmen need to ensure their property title records have been diligently and thoroughly maintained. A seemingly small requirement may have ramifications, including the loss of the title for failing to meet a requirement. Having a thorough chain of title allows property leasers to know what they’re getting into, what is required of them, and what they can expect from their title agreements.

landman survival guide blog

Topics: Title


Recent Posts

Unpacking the Drill Site Runsheet

read more

What Is a Production Sharing Agreement?

read more

How to Sell Your Property When You've Leased the Mineral Rights

read more