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Shopping for rural property: Minerals, restrictive covenants, the environment, and taxesShopping for rural property: Minerals, restrictive covenants, the environment, and taxesCharles GillilandGilliland
2018-07-05T05:00:00ZLand

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This is part two of a two-part series designed to help Texans make better real estate decisions about purchasing rural land.

Mineral rights. Mineral ownership can be important for land buyers, especially when less than half the minerals transfer with the ownership. Mineral owners dominate over surface owners. This means a mineral owner, or the lessee, can enter the property to extract minerals without the landowner's permission.

Furthermore, if the current owner has an existing lease with a mineral producer, that lease remains in force even if the minerals transfer with the surface.

TAKEAWAY: Before buying rural property in Texas, always ask about mineral rights and potential mineral exploration.

Restrictive covenants. Some land titles contain restrictive covenants that constrain use. Restrictive covenants are sometimes called deed restrictions, and they typically attempt to ensure a minimum level of land use, such as requiring an owner build a home with specified minimum square footage.

TAKEAWAY: Most problems with restrictive covenants occur when a buyer is uninformed. Identify possible restrictions before the transaction is completed. Both buyer and seller should take them into account.

Environmental regulations. Environmental regulations may signal potential problems for landowners. Consequently, buyers should identify possible issues prior to closing the deal. Endangered species regulations or the presence of wetlands can limit land-use options. In addition, the presence of hazardous substances may create an onerous liability for anyone taking title to land.

Federal law protects designated endangered species and requires the preservation of their habitat. Owners of land inhabited by an endangered species will likely find severe restrictions on land use. In some cases, restrictions have halted most human activity in endangered species habitats.

TAKEAWAY: Be aware of existing endangered species habitats and know about threatened species that may acquire endangered status in the future.

Property taxes. The appraisal method used to determine taxes may affect price negotiations. In Texas, if the current owner is being taxed under the open-space provision, the liability for a potential rollback tax passes to the new owner.

Open –space treatment depends on establishing a record of past and continuing land use for agriculture or timber production. Providing wildlife habitat can qualify as an agricultural use. When land receives open-space treatment, property tax liability depends on agricultural-use value rather than market value.

Generally, open-space status results in a substantial tax reduction. In Texas, however, when land use changes, the tax code imposes an additional tax equal to the difference between taxes based on market value and taxes based on use value for the previous five years. Interest on the taxes is due, too.

Frequently open-space tax treatment creates no difficulties, but potential problems emerge when the seller has benefited from reduced taxes and a buyer adopts a nonqualifying land use soon after purchase.

TAKEAWAY: Changing land use triggers a rollback and imposes a tax lien plus interest on the land. The buyer typically assumes the added tax burden.

A 144-page book Buying Rural Land in Texas by Dr. Charles E. Gilliland is in its second printing and available from the Texas A&M University Press. Texas rural land data by region is available on the Real Estate Center's website.

Buyers unfamiliar with properties in their target area, property values, or the legal documents involved should gather facts and seek help from competent legal and rural real estate professionals. ​


2018-07-05T05:05:00Zhttps://www.recenter.tamu.edu/info/blog/?Item=129

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