With the fracking boom, developers looking at large tracks of land are often finding those parcels encumbered with an oil/gas drilling lease. Even when leases are (or can be) limited to subsurface operations only, it is increasingly difficult to get a title insurer to provide full coverage against all surface operations. A decade ago title insurers were willing to exclude surface operations from a lease listed as an Exhibit B exception, but no longer. With the revision of title endorsements in 2012, coverage against surface operations became more limited.
Today, coverage against surface operations is governed by ALTA 35. Improvements are defined as a “building, structure located on the surface of the Land, and any paved road, walkway, parking area, driveway, or curb, affixed to the Land at Date of Policy and that by law constitutes real property, but excluding any crops, landscaping, lawn shrubbery, or trees.” Only those actual improvements existing at the time of title policy issuance are covered, but not landscaping or undeveloped common areas.
For developers with an approved site plan (but no installed improvement), ALTA 35.2 provides coverage for “Future Improvements” according to “Plans” – defined as a specific “survey, site and elevation plans or other depictions of drawings prepared by (insert name of architect/engineer) dated __, last revised __, designated as __ consisting of __ sheets.” This coverage provides title insurance for future improvements shown on the approved plan, but again lacks coverage for landscaping elements.
While other variations of ALTA 35 exist, nothing provides coverage for land bought on speculation or lacking an approved plan at the time of closing. A prudent developer may push off closing until it has an improved and insurable plan, or be prepared to enforce limits in oil/gas leases against surface operations on its own. Even developers with ALTA 35 coverage must be prepared to battle surface operations on landscaping elements themselves. Rather than tendering claims to the title insurance company, a developer will need to be prepared to initiate litigation and seek injunctive relief in a dispute with an oil/gas company on disputed surface operations outside ALTA 35.
*Reprinted from the HBA of Greater Cleveland Newsletter.