An old rule of thumb for title examiners was that a mineral reservation needs to be in the granting clause, not the warranty clause, of a deed to be valid. As the courts have moved to seeking to determine the parties’ intent in a deed, these old rules have been whittled away. A recent Colorado Court of Appeals case shows that a title examiner needs to read the entire deed and that a mineral reservation does not need to be in the granting clause to be valid.

In Owens v. Tergeson, 2015 COA 164, 2015 WL 6746535 (2015), the court of appeals interpreted two deeds from 1950 and found that all oil, gas and other mineral interests were reserved in the deeds.

The reservation was not in the granting clause of the deeds. The court found the reservation was in the habendum clause of the deeds (the clause that starts out “To Have and To Hold . . . ”). The part of the deeds where the reservation was inserted read:

. . . free and clear from all former and other grants, bargains, sales, liens, taxes, assessments and encumbrances of whatever kind or nature soever. except reserving all oil, gas and other minerals and the right to use so much of the surface as is necessary to develop, produce and care for the same; also 1950 taxes; and the above bargained premises in the quiet and peaceable possession of the said party of the second part, his heirs and assigns against all and every person or persons lawfully claiming or to claim the whole or any part thereof, the said parties of the first part shall and will WARRANT AND FOREVER DEFEND.

The court of appeals found it was important that the deeds appear to be a printed form of warranty deed with the reservation language added.

The court noted that in a 1952 case, the Colorado Supreme Court rejected the old common law rule requiring the reservation to be in the granting clause, in favor of the more modern view that the overall intent from the deed considered as a whole should control.

This decision is interesting to title attorneys because it confirms the trend of the court to interpret deeds as a whole to determine the parties’ intent.

  2797 Hits
2797 Hits

Assuring Your Covenants “Run with the Land”

Developers and owners of real property typically enter into a variety of contracts concerning the use of real property. This is particularly true in the natural resource extraction industry. Generally, under Colorado law contractual obligations may be deemed personal covenants that bind only the parties signing the agreement, or they may be covenants that “run with the land” and bind successors-in-title. In order for a covenant to run with the land, however, two primary elements must be established: 1) the parties to the covenant intended it to run with the land, and 2) the covenant “touches and concerns” the land (i.e. it must closely relate to the land, its use, or its enjoyment). If either element is not present, the covenant will generally not bind successors-in-title.

If parties to an agreement intend to create covenants that run with the land, it is important the agreement itself contain express language to this effect, together with express language stating that the obligations under the agreement will bind and inure to the benefit of successors and assigns. It is also important that the agreement is recorded in the real property records to put future successors-in-title on record notice of the covenants. “In order for a covenant to run with the land, there must be an intent by the parties to the covenant that it do so,” Cloud v. Ass’n of Owners, Satellite Apt. Bldg., Inc., 857 P.2d 435, 440 (Colo. App. 1992), and such intent “turns on the construction of relevant documents.” Lookout Mountain Paradise Hills Homeowners’ Ass’n v. Viewpoint Assocs., 867 P.2d 70, 74 (Colo. App. 1993). Courts resolve all doubts against the restriction and in favor of free and unrestricted use of property. K9Shrink, LLC v. Ridgewood Meadows Water and Homeowners Ass’n, 278 P.3d 372, 377 (Colo. App. 2011).

Courts have refused to find a covenant runs with the land even when the covenant is included in an instrument that contains a general provision stating the instrument shall be binding upon successors and assigns. In TBI Exploration, Inc. v. Belco Energy Corp., for example, the Fifth Circuit affirmed that under Colorado law, a covenant in a Participation Agreement to drill exploratory wells was not a covenant that ran with the land even where the Participation Agreement contained general language stating the agreement shall be binding upon the parties’ “and their respective successors and assigns.” 220 F.3d 586, 2000 WL 960047, *4 (5th Cir. 2000) (not designated for publication) (applying Colorado law). The Fifth Circuit explained that the requirement that real covenants be expressed in specific and unambiguous terms carries force because “nonparties and successors-in-interest who did not participate in the negotiations to the principal agreement should be able to determine their respective rights and obligations from the face of the principal agreement.” Similarly, in Midcities Metropolitan Dist. No. 1, v. U.S. Bank Nat’l Ass’n, 2013 WL 3200088, at ** 4 and 6 (D. Colo. June 24, 2013) Judge Babcock found as a matter of law that where Deed did not expressly reference any of the covenants in its Article II as being covenants that run with the land or binding on the parties’ successors and assigns, such covenants did not run with the land despite general language stating “[t]his Deed shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns.”).

It is also important to keep in mind Colorado recording statutes, including C.R.S. § 38-35-108, which provides:

When a deed or any other instrument in writing affecting title to real property has been recorded and such deed or other instrument contains a recitation of or reference to some other instrument purporting to affect title to said real property, such recitation or reference shall bind only the parties to the instrument and shall not be notice to any other person whatsoever unless the instrument mentioned or referred to in the recital is of record in the county where the real property is located. Unless the same is so recorded, no person other than the parties to the instrument shall be required to make any inquiry or investigation concerning such recitation or reference.

Because parties are presumed to contract with knowledge of applicable law, the failure to record a contract or instrument in the real property records to put successors-in-title on record notice thereof is evidence that the parties to the agreement did not intend for contractual covenants to bind successors-in-title at the time it was entered. This holds true even if a later successor-in-title had actual knowledge of the covenant when it acquired the property because the intent of the parties at the time of contracting is controlling. Thus, parties who intend for a covenant to run with the land should not rely on a mere reference to the contract in a recorded instrument but should record the agreement itself, or some memorandum reciting the material terms, in the real property records and include express language in the agreement as to their intent for the covenants to run with the land.

  16505 Hits
16505 Hits