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How not to transfer real estate and mineral interests

Posted on: January 31st, 2018
by David Ganje

It’s not your father’s Oldsmobile anymore: the world of real estate and mineral interests has changed. Yet, in the law, adherents to customs abound aplenty. Keeping, transferring and ‘devising’ real estate and mineral interests is not what you were taught. Following long-standing old usages can result in modern mistakes. Let me provide but a few examples.

Old practices die hard. The old practice of a current deed simply cutting and pasting some prior deed language is risky business. A prior deed holder’s assertion in a deed that he owned something does not make it so. In a case this year the SD Supreme Court ruled that current property owner’s reliance on their deed and on prior recorded deeds which asserted that an easement existed was wrong. The reason? Historically no party had ever properly created or declared the so-called easement. That’s a big problem for the current owners. Do not blindly rely upon the historical chain of title. Just because your father told you Oldsmobiles are the best cars made, you had better check. Oldsmobiles aren’t made anymore.
Christmas gifts and girlfriends. In South Dakota you cannot convey to a purchaser but still reserve back as a Christmas gift an interest in the property in favor of your current or future girlfriend. Yes, this has happened. Reservations in a deed in favor of a third party do not work. Nevertheless there are modern statutes authorizing the use of a deed outside of probate by which you can designate recipients to the property upon the expiration of your ‘credit card.’ When done correctly it is an alternative to formal estate planning. This procedure is not used enough although it is less expensive than other estate planning tools.
Caveat Emptor is for fools. All buyers require special attention. I insist that my commercial and ag sellers comply, at a minimum, with similar a disclosure report following the disclosures required for residential sales. I also require that a buyer of property which includes mineral interests make a representation that he has himself researched the value of the interests. When selling real estate do not allow for a small item to become a deal breaker. Over-disclose. I know of a transaction where the seller did not disclose that an end-of-life event had occurred in the cistern of a property. This could have canceled the deal. On the obnoxiously humorous side, in a large transaction involving land and buildings, the buyers at the closing table were petty and complained about holes in the wall of the residence. The small holes were caused by the removal of the seller’s hanging pictures. At the closing table I volunteered that the holes came with the sale. This comment could have canceled the deal. Disclose. Disclose. A transaction is not the same as a first date when one suggests to the date that he is a professional baseball player. Disclose and be truthful.
Getting title insurance is daredevil business. The use of title insurance is common today. Advising a land or commercial client to only obtain standard title insurance is to invite a malpractice claim. Under South Dakota law standard title insurance insures against “loss by encumbrance, or defective titles, or invalidity, or adverse claim to title.” Standard title insurance has significant limitations. Generally speaking, title insurance covers only whether the owner has good ‘legal title’ to the land. Title insurance will not cover the physical state or condition of the land. Mineral interests and mineral ownership are not covered by title insurance. The existence of environmental contamination is not an insured event. The existence of zoning laws or related covenants which restrict the use of property are not an insured condition. One court has held that, “zoning or environmental laws of general application, which are not recorded against specific parcels of property, are generally excluded from standard form ALTA title insurance policies . . .” There is an important difference between having good legal title — and the physical condition of the land itself. One can obtain perfectly good insured legal title to valueless property. That’s why you hire a lawyer.

David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law.

South Dakota Underground Trespass

Posted on: January 1st, 2018
by David Ganje

South Dakota courts have not to the date of this opinion piece adopted a definition, nor have the courts ruled on the civil wrong called ‘underground trespass.’ Yet going back to 1877 South Dakota territorial real estate law holds, “The owner of land . . . has the right to the surface and to everything permanently situated beneath or above it.” Beyond this definition of land ownership the legislature has not acted on the issue of underground trespass. Even though South Dakota has no case law on the subject, the state supreme court has a known preference for following a particular legal treatise when deciding legal cases. This treatise clearly defines civil trespass as a wrongful intrusion on one’s property committed on, beneath, or above the surface of the earth with an exception that relates to airspace intrusions.

I leave for another discussion whether the upstanding property-owning residents of Lead and the reputable denizens of Deadwood might, under modern law, be the victims of underground trespass because of the honeycombed labyrinth of old mining tunnels running every which way under the surface of these fine cities. In point of fact most incidents of underground trespass occur out on the plains.

How does underground trespass occur on the plains? Without belaboring a lot of examples, this might occur from underground pipeline leaks, leaking or corroded underground storage tanks, overzealous oil operators infringing a bit too far under unleased property, a so-called disposal well’s ‘waste fluids’ migrating beyond its permissible subsurface boundaries, and so forth.

Is a man’s subsurface his castle? Maybe. A Nebraska Court addressed the issue of subterranean trespass. The court held that the operator of an injection well could be liable if the damaged party could show that fluid migration harmed the damaged party’s ability to produce oil. The North Dakota Supreme Court has ruled that a claim in underground trespass may be trumped by a properly obtained force-pooling order from the state authority which oversees gas and oil operations. In the North Dakota case it must be noted that the claimant property owner did not allege any actual damage to his interests. That claimant was about as smart as the guy who takes a lady out on a date without enough pocket money to buy the coffee. A West Virginia court, in a case that was finally settled and dismissed, ruled that subsurface horizontal fracturing for minerals very close to a Plaintiff’s property line was to be considered underground trespass. The lesson is that modern society and the laws that follow it will consider the issue of trespass on more than just the surface of property.

In addition to underground trespass claims other types of legal claims based on subterranean intrusion are nuisance, negligence, or strict liability. The question then is: What could the actual damage be to subsurface property from such an intrusion? Answers to this include contamination of existing water rights, wrongful taking of a property owner’s mineral rights, contamination of surface soil productivity and degradation of an owner’s foreseeable rights to mineral extraction. I submit that these subsurface intrusions will – if they have not already – occur in the state. There will be much work for the courts to do.

David Ganje. David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law. The website is Lexenergy.net

South Dakota’s Approach To Condemnation

Posted on: December 2nd, 2016
by David Ganje

The use of eminent domain (condemnation) is a modern legal problem. Condemnation is the taking of property for a public and in some cases a private interest. Condemnation is a legally sanctioned sword. My argument in this article is not that eminent domain as a concept is wrong. My argument is that in its present state, as a legal vehicle attempting to provide fairness, eminent domain is a lemon in need of repair on both sides. This law allows a governmental body – and a private business – to convert privately owned land to another use, often over the objections of the landowner. Traditionally in a legal taking a landowner receives “market value” for the land taken. This often includes money for reduction in agriculture output or for the loss of other productive use of the land.

While eminent domain makes sense under a public utility easement paradigm, how does this process apply when a pipeline easement on a landowner’s property is the “transportation vehicle” for a commodity? How does one calculate “fair market value” when millions of dollars’ worth of product are flowing across privately-held land? Candidate Trump said, “I want the Keystone pipeline, but the people of the United States should be given a piece, a significant piece of the profits.” South Dakota law does not take this into consideration. Condemnation of one’s land involves forced negotiation required by law, and sometimes involuntary litigation. Is a one-time payment for an easement fair compensation? Is the condemnor (developer or government agency) required to provide its plan of work and operations to the condemnee (property owner) so the owner can evaluate this information? This would create a fairer playing field in negotiations. South Dakota law does not provide for this. Should the landowner be granted his expenses and attorney’s fees in a trial and for an appeal if the final award given is greater than the last ‘offer’ made by the condemnor? Or if a mistrial is called which is not the fault of the landowner? South Dakota law does not provide for this. Is the condemnor required to provide written disclosure of its calculations and basis for a proposed offer for the property? South Dakota law does not provide for this. In a federal condemnation, even if a landowner does not formally answer the condemnation lawsuit the landowner may still present evidence of the value of his land and may participate in the distribution of awarded monies. South Dakota law does not provide for this.

The law of condemnation brings out a curious inconsistency in the character of the state. South Dakota is a strong property-rights and individual-rights state. Aside from the important and unique relationships of Indian reservations to the state and to the federal government, private property in South Dakota is a hallowed right. State laws are vigilant in protecting one’s real estate and other property from intrusion, reduction in value as well as protecting the right to use the property for any lawful purposes. The state Constitution, like the federal, directs that, “Private property shall not be taken for public use, or damaged, without just compensation. . .”

Thus we get to my puzzlement. South Dakota has done very little to modernize eminent domain laws. This is not a case of the emperor having no clothes. This is a case of the emperor having no vision. The takeaway is that state leaders have no appetite for changing the status quo.

In modern vernacular ‘trending’ means that which is currently popular in social media, however in common English it means that which is changing or developing in a certain direction. The word ‘trending’ applies to the painfully slow but observable changes in the law of eminent domain. Unfortunately these changes are not coming from South Dakota political leaders. The state’s recent passage of a voluntary mediation statute for condemnation cases does nothing to address the substantive changes needed.A national trend has started toward balancing the sacrifices a property owner makes when business or government does its eminent domain dance. Courts, and over time other state legislatures, will continue to correct the ills of eminent domain when it is used as a legal sword. South Dakota must cultivate a fairer system for the taking of property.

Brownfields: A Calculated Risk Missed by Tribes and South Dakota

Posted on: December 2nd, 2016
by David Ganje

The EPA defines a brownfield as “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.” The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) mandated that the purchasers of property are liable for any contamination on this property regardless of when they acquired a site. However, CERCLA also created a defense known as the “innocent landowner defense” that can only be used if “appropriate due diligence” was conducted prior to the acquisition of the property. Appropriate due diligence has been exercised if an environmental site assessment (ESA), a thorough investigation of a site’s current and previous owners, has been prepared.

ESA’s have an average cost of about $4,000 for a small business acquisition and can vary depending on variety of factors specific to the job. The typical businesses that leave behind brownfields include gas stations, dry cleaners, railroads, oil refineries, liquid / chemical storage facilities, and steel / heavy manufacturing plants. Typical hazardous materials they leave behind include hydrocarbons, solvents, pesticides, heavy metals such as lead, and asbestos.

What is so dangerous about leaving these brownfields alone? Many of these brownfields are abandoned commercial properties and tend to be an eyesore in the community. Not only can this lead to decreased property values in surrounding neighborhoods, but the property can also pose serious health risks for new tenants and their neighbors.

Once a brownfield has been identified, the EPA provides two options for cleanup, revolving loan fund grants and cleanup grants. The purpose of revolving loan fund grants is to enable states, political subdivisions, and Native American tribes to make low interest loans to carryout cleanup activities at brownfields properties. Cleanup grants provide funding for a grant recipient to carry out cleanup activities at brownfields sites.

Since the cost of cleanup is considerable, the grants may provide several hundred thousand dollars towards the cost of cleanup. This money comes with strings attached, of course. Among other things, the costs are shared with the property owner, by at least 20 percent, and the brownfield site must be cleaned up within a three-year period.

Entities eligible for the EPA’s brownfield grants and loans include state, local and tribal governments; general purpose units of local government, land clearance authorities or other quasi-governmental entities; regional council or redevelopment agencies; states or legislatures; or nonprofit organizations. If you are not an eligible entity, you may still be able to receive assistance through your state or city.

In South Dakota, the agency that provides statewide brownfield assistance is the Department of Environment & Natural Resources (DENR). DENR receives funding from the EPA for assessments and cleanup and have discretion in how to allocate those funds. For example, a national hotel chain looking to redevelop a brownfield site in South Dakota would not be eligible to apply for assistance through the EPA directly. However, the hotel chain could contact DENR for assistance and DENR could use their funds to perform an ESA or help with the cleanup.

In 2015, Sioux Falls received an assessment grant for $400,000 from the EPA. In addition to performing site assessments, they plan to use the money to update the city’s brownfields site inventory, prioritize sites, plan for cleanups at priority sites, and perform community outreach activities. They, like DENR, also have discretion in performing assessments and have made assessments available to entities who would not be eligible to apply for grants from the EPA.

With these options available to assist with brownfield redevelopment, why do so many brownfields remain untouched in South Dakota? In the last 5 years the EPA only awarded four grants in South Dakota. They gave an assessment grant to Sioux Falls and cleanup grants to Standing Rock Sioux Tribe, Cheyenne River Sioux Tribe, and Lower Brule Sioux Tribe. This suggests that other entities are not aware of the grants available to them, they are dissuaded from applying, or they do not have the structure to run a brownfields program.

Since South Dakota is not small Rhode Island, which is about the size of Brown County, businesses and other eligible entities find it is more economical to buy available land than it is to redevelop a brownfield site. This misses the mark. A brownfield site is many times in an attractive location. A brownfield site is often close to business activity and transportation or the prior owner would not have developed it.

Although the grants and other forms of assistance are “competitive,” grants are awarded based on guidelines. The deadlines for applying for assessment and cleanup grants from the EPA is December 20, 2016, so it’s not too late.

View the original article at FarmForum.net

You Get The Water With The Land – Sort Of

Posted on: October 28th, 2016
by David Ganje

Gaze over your shoreline property knowing that you can access the waters directly in front of you. Unfortunately, under New York law, depending on the shape of the shoreline and how lot boundaries are drawn, this may not be the case. New York courts use different principles and their own discretion in determining the reach of landowners’ riparian rights.

In Muraca v. Meyerowitz, 13 Misc. 3d 348, 350 (Sup. Ct. 2006), three adjacent riparian landowners disputed each others riparian water rights boundaries primarily because one of the party’s private boat occupied a large portion of surface waters near the shore.

Under New York law, riparian rights only arise from the ownership of land abutting or surrounding a body of water, such as a lake or a pond as long as there is contact between water and the land. In Muraca, the Court recognized that riparian landowner rights extend out to the navigable portion of the water body, but go no further. A riparian owner has the right to access water and the related right to protect the water from illegal drawing of the water as well as the right to build out to the water by way of a dock, slip or pier.

When a controversy concerning riparian rights arises, the resolution sought is access to water from shoreline properties. How to determine the rights of access between riparian landowners is complex.

In New York there are no mechanical rules used to draw the lateral boundaries between riparian landowners. Rather, courts strive to give an equitable allocation of the waterfront area, with the right of access depending on the frontage available to the landowner based on the lateral boundaries of their properties.
The Muraca court explains that two principal formulas have been derived for establishing lateral boundaries in the context of landowner’s riparian rights.
First, the “perpendicular rule” extends the lateral onshore boundaries out to the navigable body of water by lines that are perpendicular to the shoreline. This principle is equitable when there are only minor shoreline irregularities (i.e. a straight onshore boundary).

Second, the “proportional method” attempts to draw a path between onshore boundaries that are proportionate to the amount of frontage the landowners enjoys. When choosing a method or modifying a rule, a court will consider a landowner’s right to direct access to navigable waters along with their neighbor’s right of direct access.

So it is not just one’s right of access to navigable waters that matter when resolving such controversies, but rather what in fact matters are one’s riparian rights in relation to one’s neighbors.

There are limits attached to these general principals. A riparian owner must remember that he is always subject to the restrictions to which he agreed when he purchased the property. Outside of these contractual or deed restrictions, riparian landowners cannot extend their “upland boundaries”, or the boundary above the mean high tide line, to form the lateral boundaries of the land under the water. This limit however is not all encompassing. New York courts have recognized that a riparian owner’s right to the natural flow of water along its land is properly classified as real property, equally with the land. A party could nevertheless acquire an interest in the water flow separate and distinct from the land under the water.

In Muraca the Court found the proportionate rule inapplicable and modified the perpendicular rule because strictly applying the perpendicular rule would have unfairly reduced the defendants’ right to access their outshore surface waters.

Ironically, even though the boat owner was given more riparian rights to access the outshore waters in front of his property than the complaining plaintiff requested, the Court found the party’s ability to dock his 28 foot boat to be of little consequence. The riparian rights boundaries only have to be sufficient enough to accommodate reasonably sized watercraft.

The implications of a court determining the riparian boundary lines based on general principles of equity is memorable.
First, it suggests that a court can alter your deed if you eventually find yourself in litigation over the riparian rights of yourself and other riparian landowners.
Second, and perhaps more importantly, under New York law, when riparian real property increased by “accretion”, or the gradual addition of property along a shoreline, then new formed land belongs to the upland landowner. However, if the riparian boundary lines are altered as the court did in Muraca, then the new lands normally entitled to riparian landowner will go to their neighbor.

David Ganje practices law in the area of natural resources, environmental and commercial law.