More Mandatory Disclosures: A Quick Look at the Mineral and Oil and Gas Rights Disclosure

When an owner of real property decides to sell, North Carolina requires that owner to make several disclosures to prospective buyers.  One of those disclosures discusses whether or not the property has been severed of its mineral and/or oil and gas rights. 

Generally, in North Carolina, when title to a property is conveyed the new owner is not just granted ownership of the property’s surface but instead owns the property from the surface up to the heavens and down into the depths of the earth.  Because of this, land owners also have rights in the minerals and oil and gas that lay beneath the surface of their property.  

However, mineral and oil and gas rights can be severed from real property.  To sever the rights, the owner of the property may either convey the rights to another by deed, or an owner may reserve ownership of the rights to him/herself when conveying the property to another.  If the mineral and/or oil and gas rights are severed from the property, the owner of those rights may have the permanent right to drill, mine, explore, and remove the subsurface minerals and/or oil and gas from the property even against the wishes of the land owner. 

Because of this, North Carolina requires owners to disclose to prospective buyers, even before an offer is made, whether or not the mineral and/or oil and gas rights have been severed from the property.  This disclosure directly asks the current property owner to disclose whether the mineral and/or oil and gas rights were severed from the property by the previous owner, by the current owner, and whether the current owner intends to sever the rights from the property prior to transfer of title to the buyer.  If the owner does not provide the disclosure to the prospective buyer before the offer is made, the buyer may, under certain conditions, be able to cancel the contract without penalty by personally delivering or mailing written notice to cancel to the owner or owner’s agent within three calendar days of receiving the disclosure, or three calendar days following the date the contract was executed, whichever occurs first. 

It is important to note that a disclosure statement is not required for some transactions, but is required for the sale of improved property including transfers involving new construction, leases with the option to purchase where the lessee occupies the property, and transfers where both parties agree a Residential Property and Owner’s Association Disclosure Statement is not to be provided.  For a complete list of transfers where a disclosure is required and exemptions see N.C. Gen. Stat. 47E-2(a)-(b).