*The following post is meant to be purely informational. It is not legal advice and should not be interpreted as such. Speak to a legal professional about your specific situation.
“Warranty” seems like a scary word, but it doesn’t have to be. When mineral and royalty owners decide to sell their interests, they often run across warranty language when reading through a Purchase Sale Agreement (PSA) or a Mineral/Royalty Deed. There are usually two different kinds of warranties referenced in these documents: a “General warranty” and a “Special warranty”. Let’s first explore the difference between the two warranties, then discuss how you may want to handle this topic in your negotiations with buyers.
GENERAL WARRANTY
A general warranty is typically more favorable for the Buyer (the grantee). With this language, the seller (the grantor) is essentially guaranteeing that the mineral interests are free and clear of adverse ownership claims or other encumbrances by anyone other than the seller.
That’s all well and good, however be aware that with a general warranty, you as the seller are making this guarantee for the entire lifespan of the mineral interest. Meaning, you’re not only guaranteeing that there are no adverse claims or encumbrances during the time of your ownership, but you’re also guaranteeing that fact for all previous owners as well!
If the interest has been in your family forever and ever, the family has kept decent records, and you’re unaware of any past claims, then you probably don’t have much to worry about. However, it’s still very important to be aware of the sweeping guarantee you’re making with a general warranty.
SPECIAL WARRANTY
A special warranty (also known as a “special limited warranty”) is typically more favorable for the Seller. Like a general warranty, the seller is guaranteeing that the mineral interests are free of adverse claims or encumbrances, but there’s one big difference -- the seller is only warranting against defects during the time of their ownership. Whereas you can think of a general warranty as covering all-time, a special warranty just covers the period in which you’ve owned the mineral interests.
When referencing a special warranty, you might hear buyers mention the phrase “by, through, and under”, and you may also see this legal jargon written into the warranty language. Here’s an example: Grantor warrants title against the lawful claims of all persons claiming by, through, and under Grantor, but not otherwise. This is essentially saying the same thing we discussed in the previous paragraph -- you as the seller are warranting title “by, through, and under” your time as the owner of said interests, but not otherwise.
As you can see, a special warranty ultimately gives the buyer less protection, but it ensures that the seller isn’t making broad guarantees that may not be in their best interest.
SUMMARY
Any legitimate mineral buyer is going to require the seller to warrant the title -- it’s simply not prudent for anyone to purchase minerals or royalties (or real estate for that matter!) without some kind of warranty. With that said, the type of warranty (like most other things in a contract) is negotiable and if you’re unsure of the history of your holdings, you may want to push for a special warranty.