Are Geothermal Title Exceptions the New Norm in Real Estate Transactions?

This article was co-authored by Laina Hammond, Chief Operating Officer at Sage Title Company.

As Texas property owners and real estate professionals review recent title insurance policies, many are encountering a new and unfamiliar legal coverage exception: geothermal energy and associated resources. These exceptions, spurred by Texas Senate Bill 785 (SB 785), might appear with phrases like “all leases, grants, exceptions, or reservations of the geothermal energy and associated resources below the surface of the land, together with all rights, privileges and immunities relating thereto.”

This development prompts a critical question: why are these geothermal energy exceptions now becoming a standard part of many Texas title policies? Understanding the implications of SB 785 is essential for navigating these changes and mitigating potential risks.

TX SB 785 Explained

On June 18, 2023, Texas Senate Bill 785 (SB 785) took effect, providing much-needed clarity on the ownership of geothermal energy and associated resources. This legislation explicitly states that geothermal energy (heat, steam, and hot water under the ground’s surface) does not constitute minerals, distinguishing it from traditional resources such as oil and gas. According to SB 785, geothermal resources below the ground’s surface are considered real property owned by the landowner or, if the surface and mineral estates are severed, by the surface estate owner.

The passage of SB 785 addresses long-standing ambiguities in Texas law regarding geothermal energy rights. The legal history of geothermal energy ownership in Texas has been shaped by several precedent-setting cases and legislative efforts that clarified the distinction between surface and mineral estates.

Notable cases such as Gulf Production Co. v. Continental Oil Co. (1939) and Humble Oil & Refining Co. v. West (1974) shed light on how Texas courts handle the division of rights between surface and mineral owners. And while the Geothermal Resources Act of 1975 acknowledged geothermal energy’s potential, it stopped short of clarifying ownership.

Insurance Risks

With the implementation of SB 785, some title companies have begun incorporating exclusions for geothermal energy rights in Texas title insurance policies. Despite the new law’s efforts to clarify ownership, significant risks of boundary disputes remain. For example, disputes may arise when geothermal resource pools cross property lines or when geothermal development leads to enforcement actions or environmental liabilities.

To mitigate these risks, title companies in Texas are increasingly excluding geothermal energy rights from their coverage. This practice aligns with the amended Texas Insurance Code, which grants title companies greater flexibility as a separate exception item on title in tailoring their policies.

Legal Implications

The legal implications of SB 785 are yet to be fully understood but will impact real estate transactions and property ownership. By clearly defining geothermal energy as separate from minerals, the law ensures that geothermal resources are owned by the surface estate unless specified otherwise. This change could affect property financing, management, and separate geothermal severances and leases.

The introduction of SB 785 raises several important questions:

• Will we start seeing an influx of geothermal severances and leases?
• Will the Texas Department of Insurance make the exclusion of geothermal rights mandatory in the future?
• Could there be a push to provide title insurance endorsements with affirmative coverage for geothermal energy?
• How will this law impact existing and future improvements on properties?
• What will be the long-term implications for real estate financing and transactions?

These questions highlight the ongoing evolution of geothermal energy regulation in Texas and the need for property owners to stay informed about their rights and risks under the new law.

TX SB 785 represents a significant step forward in clarifying geothermal energy ownership in Texas. While it addresses many legal uncertainties, it also introduces new risks and considerations for property owners. As the industry adapts to these changes, it will be crucial to monitor legislative and regulatory developments to fully understand their implications.

Sources:

Bill Text: TX SB785 | 2023-2024 | 88th Legislature | Enrolled

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The Geothermal Resources Act and Its Implications

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