It Pays to Look Closely
Property owners—or prospective owners—take heed: just because your county’s records do not show a lease as binding on your property does not mean that such a filing does not exist in an adjacent county.
A not-often-relied-upon property code provision recently became the bane of one surface owner’s use of its property, and the savior of an operator. In 2001, after procuring a title policy, Aston Meadows purchased property in northern Tarrant County for residential development. After purchase, Aston Meadows subdivided the property and recorded a plat. Despite no lease filed in Tarrant County, and no evidence of drilling activity at the time of purchase, Devon Energy Production Company, L.P., drilled horizontally under the Property. Aston Meadows sued Devon, for impermissibly drilling under the property. Imagine Aston Meadow’s surprise when a 1977 oil, gas, and mineral lease (the Lease) encumbering several hundred acres in both Tarrant and Wise Counties was produced. The entire Property, which had been part of a larger tract located in both Tarrant and Wise Counties, was subject to the Lease. However, the Lease was only recorded in Wise County (until 2002), and was not listed as an encumbrance on Aston Meadows’s title policy.
Aston Meadows asked the trial court to declare that the Lease was invalid because it was not recorded in Tarrant County and, accordingly, Aston Meadows did not have notice of the Lease. Devon claimed that Aston Meadow had “constructive notice” of the Lease since it was recorded in Wise County. Devon relied on section 11.001(a) of the Texas Property Code in making this argument, which provides that “[t]o be effectively recorded, an instrument relating to real property must be eligible for recording and must be recorded in the county in which a part of the property is located.” (emphasis added).
As a side note, Aston Meadows’ deed described the property as “a portion of that certain tract of land described in deed to the The Jack W. Wilson Family Trust, recorded in Volume 11964, page 683, Deed Records, Tarrant County, Texas.” When the deed to the Jack W. Wilson Family Trust is read, it describes the property being conveyed as located in “Tarrant County and Wise County.” The Texas Property Code provides that “[a] reference in an instrument to the volume and page number, film code number, or county clerk file number of the ‘real property records’ (or other words of similar import) for a particular county is equivalent to a reference to the deed records, deed of trust records, or other specific records, for the purpose of providing effective notice to all persons of the existence of the referenced instrument.”
Both parties filed for summary judgment, asking that the court rule in their favor. The court ultimately ruled in favor of Devon, finding that Aston Meadows had constructive notice, and therefore the Lease was valid. Aston Meadows appealed the decision to the Court of Appeals for the Second District of Texas in Fort Worth. The Court of Appeals agreed with the trial court, holding that “the correct statutory construction of section 11.001(a) is that when an instrument relates to a contiguous tract of land located in more than one county, the recording of that instrument in only one of the counties is sufficient to comply with the requirements of section 11.001(a).” Aston Meadows made one more attempt, and appealed the Court of Appeals decision to the Texas Supreme Court. On June 29, 2012, the Texas Supreme Court denied Aston Meadows’ request for review, upholding this property code provision, and its interpretation, much to Devon’s benefit. Lesson? If you are a buyer, read those title policies, as well as associated deeds that are referenced—there may be some hidden surprises, and the onus is on you.
In Texas, sufficient notice may be actual or constructive. Actual notice is based upon personal information or knowledge, while constructive notice is notice that is imputed to a person. The Texas Property Code provides that an “instrument that is properly recorded in the proper county is . . . notice to all persons of the existence of the instrument.”