Mandatory Oil and Gas Rights Disclosure Required for Transfer of Residential Real Property

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Affective October 1, 2012

Generally, transfers involving the first sale of a dwelling never inhabited are except from the requirements of Chapter 47E of the General Statutes (Residential Property Disclosure Act). This exemption was placed into this law by NCHBA prior to its enactment in 1995 [GS 47E-2 (9)]. However, in an act passed by the 2012 General Assembly, a very limited but important exception was enacted to this general exclusion. Section 5 of SB 820 (Clean Energy and Economic Security Act) amends GS 47E-4 to require that “an owner of real property shall include in any real estate contract, an oil and gas rights mandatory disclosure as provided by this subsection…(and) the exemptions provided under subdivision (9) and (11) of GS 47E-2 specifically are not excluded from this requirement.” Thus, this requirement applies even to transfers between parties when both parties agree not to complete a residential property disclosure statement [GS 47E-2(11)].

Consequently, as of 10/01/12, all contracts for the transfer of residential real property consisting of not less than one nor more than four dwelling units, whether or not the transaction is with the assistance of a licensed real estate broker or salesman, must contain the following disclosure:

OIL AND GAS RIGHTS DISCLOSURE:

Oil and gas rights can be severed from the title to real property by conveyance (deed) of the oil and gas rights from the owner or by reservation of the oil and gas rights by the owner. If oil and gas rights are or will be severed from the property, the owner of those rights may have the perpetual right to drill, mine, explore, and remove any of the subsurface oil or gas resources on or from the property either directly from the surface of the property or from a nearby location.

With regard to the severance of oil and gas rights, Seller makes the following disclosures:

This requirement arose because of a practice engaged in by one particular building company regarding the severance of oil and gas rights which generated significant media attention and drew regulatory and legislative attention to this issue. Because this controversy arose in the sale of new homes, a limited exception was created in the otherwise broad exclusion of the first sale of a dwelling never inhabited from the requirements of Chapter 47E.

Builders utilizing licensed real estate brokers or salesmen in the sale of new homes should experience no issues meeting this requirement as Standard Form 800-T (Offer to Purchase and Contract-New Construction) was recently amended to include this disclosure (click on this link, see page 8). Builders not utilizing this form should include this disclosure language, as it appears above and in bold, in any contract to convey residential real property. Obviously, if oil and gas rights have not been severed from the property and there is no intention to do so, the “No” boxes should be checked. If seller is uncertain if the oil and gas rights have been severed by a previous owner, the “No Representation” box would be the proper disclosure to the first question. The buyer should initial the form with respect to each question in the space provided to the left of each disclosure statement.

Please do not hesitate to contact NCHBA if you should have questions regarding this requirement.

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