Relinquishment Act of 1919 May 4, 2017

Relinquishment Act

 In Texas, there is a little-known corner of the General Land Office that deals with a specific kind of property: “Relinquishment Act Land.” The Relinquishment Act of 1919 is an obscure piece of legislation that sparked a constitutional fight, lasting until 1928, over the powers of the Government.

From his blog, John McFarland details the history of the Act:

“When Texas became an independent nation, it recognized the titles of landowners who had acquired their lands by Spanish and Mexican grants, including the state’s retention of mineral rights under those lands. In its constitution of 1876, Texas set aside more than 42,500,000 acres of unsold land as “public free school land,” and provided that the sales of those lands would be set aside in a permanent fund to finance the provision of schools in Texas.

After 1895, Texas sold lands pursuant to various acts, and under those acts, the State classified the land before sale as either “grazing land,” “mineral land,” “agricultural land,” or “timberland when it was sold.

[In 1919] the Legislature passed what has become known as the Relinquishment Act of 1919. It purported to relinquish to the owners of the land, the State’s oil and gas rights in the land, retaining a 1/16th royalty interest for the State.”

Relinquishment Act Land and Mineral Rights

As detailed in previous blogs, leasing minerals to a developer in Texas is a common practice, whereby the owner of the land signs a lease with an oil or gas developer, who then drills for the minerals on the property, and pays a royalty to the landowner proportionate to the profit made from selling the minerals.

Relinquishment Act Land (RA land) still exists today, obviously, and the Relinquishment Act is still in full force and effect. Thus, when an opportunity to lease the minerals from these lands arises, the State of Texas is entitled to its share of the profits — generally being half of what the surface owner can get from the lease.

However, there is a unique relationship between the State and the private landowner in these circumstances: the landowner essentially represents the State in lease negotiations. Under Texas Administrative Code Rule 9.22(B) the surface owner of Relinquishment Act land acts as the state’s leasing agent. In fact, that owner of land owes a duty to the State of Texas to get as good a deal as possible.

Relinquishment Act — Acting as the State’s Agent

Under 9.22(C), “ As the state’s agent, a surface owner owes the state a fiduciary duty and the duty of utmost good faith. A surface owner must fully disclose to the commissioner any facts affecting the state’s interest and must act in the best interest of the state. Any conflict of interest must be resolved by putting the interests of the state before the interests of the surface owner.”

All this means that the surface owner has to act in the best interests of the State of Texas when leasing RA lands. This means that surface owners cannot engage in self-dealing, dishonesty, or bargaining to receive higher bonus payments (payments directly to the surface owner) in exchange for lower royalties (payments directly to the mineral owners).

What’s more, failure to put the State’s interests before your own can result in heavy penalties. The state can levy a penalty of 10% on sums that the State should have received, punitive damages, exemplary damages, or interest on amounts due. (Tex. Admin. Code R. 9.22(C)(iii)).

Failure to Act in the State’s Interest Can Result in a Loss of Agency Rights

In fact, When a surface owner engages in self‑dealing by acquiring an assignment in a lease executed by that surface owner, such lease is void as of the time of assignment and the commissioner may forfeit the surface owner’s agency rights. When a surface owner breaches any duty or obligation owed to the state, the commissioner may request that the attorney general file suit. (Tex. Admin. Code R. 9.22(C)(ii)).

What this means, is that if a person engages in self-dealing, or other conduct the State deems detrimental to its mineral interests in the land, the State can sue to have the owner of the surface forfeit its agency rights, giving the State of Texas the power to lease their land without the surface owner’s consent.

In some cases, failure to sign a lease when a reasonable offer has been made can be sufficient to justify the State of Texas taking the surface owner’s lease rights away. In this way, the State has the opportunity to force owners to sign mineral leases, even if they don’t want to.

The Relinquishment Act Remains in Effect — And the General Land Office Governs Leasing and Enforcement of RA Lands

The General Land Office governs and establishes policies and procedures for the leasing and enforcement of RA lands. Interested mineral exploration companies must submit an application to the GLO for the right to lease and then must seek and obtain the lease from the land owner. At that point, the landowner must review and negotiate the terms of the proposed lease, and then execute it or not.

If there is a dispute about the terms of the lease, the mineral exploration company can look to the GLO to try and force the land owner’s hand into signing the lease.

These lands are generally in very remote areas and have changed hands numerous times over the years. Interestingly, these lands are often called “PSF” lands or “Permanent School Fund” lands, because the revenue from these mineral leases was originally designed to supplement the Texas public school system in 1856.

Today, these lands and these royalties still contribute to our public school system and represent one of the more interesting quirks in Texas’s history of real property rights.

If you have any questions regarding mineral rights or real estate, please contact us here or give us a call at 940-387-3518

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