Mineral, Air and the Capitalistic Economy

Zack Kaufman

Fin 180

Blog post #2

Dr. Hansz

Mineral, Air and the Capitalistic Economy

There are many ways to make money in the Real Estate Industry. For example, you can invest, own, rent, develop, lend or any number of other professional activities surrounding the real estate market. One way of making money in the real estate market that the average person does not think about, is the resources that come with owning real estate, otherwise known as a Fee Simple Estate. In most countries throughout the world most natural resources are government owned and cannot be sold or extracted without the permission of that government. In the United States however, private individuals who own real property also own these rights and have the right sell, lease or gift any of their resources at anytime (1). With the ownership of subsurface/mineral rights brings the potential to make money, and thus an Industry is created.

The Industry itself can get very complicated. Contracts must be very specific otherwise disagreements are inevitable. The majority of the owners of subsurface/mineral rights or air rights are thus private companies. Private companies usually acquire these rights for future extraction or because they simply have used up most of their other extraction locations. Companies who engage in these agreements are after the resources and minerals that come with that land. It could be coal, oil, natural gas, different minerals, specific type of rock, or even that windy breeze or view in the air above. Companies are willing to pay large sums of money for these rights. In 2005, a church in New York City received 30 million dollars for the air rights above their church so a couple of developers could build high-rise apartments with views of Central Park (2).

Another industry involved with the ownership of mineral/subsurface or air rights is speculators. Speculators are private companies or individuals who invest in subsurface mineral rights or air rights in the hope that in the future they can sell those rights for profit. They have no intention to harvest the resources; they simply are the middle person and broker the sale of the resources to a company who will then extract the resources for production at a later date (1). Once another individual owns either the subsurface rights or the air rights, the surface owner usually has no say in when the extraction or production can take place. Most owners schedule it years in advance if at all, so both parties know when to expect the extraction to take place. However, most disagreements between parties take place at the time of extraction or production. To assure satisfaction by both parties the seller should anticipate what might go wrong and write it into the contract to reduce the chance of misunderstanding or litigation.

Many legal issues can arise from these types of contracts. The best advice for any party involved in the purchase and sale of mineral or air rights is to carefully read the contracts and add in any and every detail involving the transaction to protect their own interest. Whether it be when the extraction can occur, to even the compensation for damages to the property. Certainly there is never a guarantee that any specific minerals exist under the surface and to what degree. Hiring an attorney is a 100 percent must to make sure the proper research is done and both parties understand and keep in good faith the contractual agreement.

In any case, real estate transactions and investments are risky situations and should always be look at very closely and carefully to assure satisfaction by both parties. The great thing about living in a capitalistic economy is that the government enables its citizens to maximize profits, make investments, own property and any resources that come with the property. The fact that private individuals can make money off their subsurface or air above them is profound and a luxury we enjoy here in the United States. It is a foundation to entrepreneurial activity and growth in the economy.

Sources

(1) Mineral Rights. geology.com/articles/mineral-rights.shtml,

(2) Bagli, Charles. Nov. 30 2005. New York Times, $430 a sq. Foot for Air? Only in New York Real Estate.