Deed Restrictions and Short Term Rentals - Texas Supreme Court Strikes Again

Produced Water - Land or Mineral Estate?

This episode explores a brand new Texas Supreme Court decision in Cactus Water Services, LLC v. COG Operating, LLC (No. 23-0676 (June 27, 2025)) that definitively resolves the characterization of produced water ownership. Summary by Trey Wilson, Texas Real Estate and Water Law Attorney in San Antonio The Court affirmed that produced water is an inherent and inescapable byproduct of oil and gas production, and its ownership, possession, custody, control, and disposition are implicitly conveyed to the mineral-estate lessee (the oil and gas operator) as part of the hydrocarbon rights. For a surface owner to retain ownership of produced water, an express reservation in the mineral conveyance is required. 1. Produced Water is Classified as "Oil-and-Gas Waste," Not Surface Water. * The central dispute hinged on whether produced water is legally "water" (part of the surface estate) or "waste" (an incidental byproduct of mineral production). * The Court unequivocally classified produced water as "oil-and-gas waste," stating, "We think it beyond cavil, and not in genuine dispute, that produced water is, and was at the time of the conveyance, oil-and-gas waste." * Despite containing water molecules, produced water is characterized as a "hazardous, even toxic, mixture produced with hydrocarbons and separated from them after extraction at the wellbore." * Statutory and regulatory frameworks treat "water" and "produced water" differently. * Produced water is subject to specialized regulations governing its disposal, treatment, and reuse due to its contaminants. The Court emphasized: "Water is something that must be protected from oil-and-gas waste; the two are not interchangeable." 2. Ownership of Produced Water is Implicitly Conveyed to the Mineral Lessee. * The Court held that "a deed or lease using typical language to convey oil-and-gas rights, though not expressly addressing produced water, includes that substance as part of the conveyance whether the parties knew of its prospective value or not." * This conclusion is rooted in the "necessarily incidental" doctrine: hydrocarbon production "necessarily contemplates and encompasses the right to produce and manage the resulting waste." * Historically, the "right to consume the value of property is generally a right of ownership, not use." * Therefore, the hydrocarbon producer's "possession and control over the disposition of liquid-waste byproduct is necessarily incidental to, and therefore encompassed in, a conveyance of oil-and-gas rights." 3. Subsequent Innovations and Beneficial Uses Do Not Alter Original Conveyances. * A key aspect of the ruling is that emerging technologies for the beneficial reuse and recycling of produced water do not retrospectively change the scope or intent of past conveyances. * The Court explicitly states, "subsequent innovations do not change the parties’ expectations or the deal that was struck." * Interpretation of the conveyance must be "as of the transfer of rights, not through a modern lens." 4. Express Reservation is Required for Surface Owners to Retain Ownership. * The Court clarified that if surface owners wish to retain ownership of produced water, "the reservation or exception from the mineral conveyance must be express and cannot be implied." * Texas law presumes "an intent to sever the mineral and surface estates, convey all valuable substances to the mineral owner... and to preserve the uses incident to each estate." Any reservation "must be by clear language." 5. Produced Water is Distinct from Groundwater; Mineral Lessee's Rights are Ownership, Not Usufructuary. * The Court rejected Cactus's argument that produced water is simply "water" belonging to the surface estate, distinguishing it from cases concerning groundwater ownership (e.g., Edwards Aquifer Authority v. Day and Sun Oil Co. v. Whitaker). These prior cases pertain to "ownership of groundwater in situ or extracted through water wells for use as water," not "waste byproducts of oil-and-gas production."

Are Wind Farms a Legal Nuisance?

Case: Green v. Century Oak Wind Project, LLC Court: Court of Appeals of Texas, Eleventh District, Eastland Date: December 12, 2024 Case Number: No. 11-23-00125-CV Overview This case involves an appeal by landowners challenging the trial court's dismissal of their nuisance lawsuit against the developers of a wind turbine project on a neighboring property. The trial court dismissed the case based on Rule 91a of the Texas Rules of Civil Procedure, which allows for dismissal of cases with no basis in law or fact. The Appellants claimed the wind farm constituted private and public nuisances. The appellate court partially reversed and remanded the case. Holding: The Court of Appeals affirmed the dismissal of the aesthetic-based nuisance claims (daytime and nighttime visual), and the common nuisance claim. However, it reversed the dismissal of the claims based on auditory, tactile and wildlife impacts, finding the Appellants' pleadings met the minimal requirements of a cause of action. These claims were remanded back to the trial court to be tried. Significance: This case underscores strict limitations on nuisance claims, particularly aesthetic complaints, and the need for specific factual allegations to establish culpable conduct on the part of a defendant. The court noted that III. Factual Background /Procedural History * Appellants filed a lawsuit seeking an injunction and damages alleging the wind turbine project would create several nuisances, including visual nuisances (day and night), audible nuisances, tactile/vibrating nuisances and harm to wildlife. * The wind turbines were to be located very close to the Appellants’ property, some as close as a "few hundred yards", with the project stretching “for miles.” * Neither Plaintiffresided on the property in question, rather the properties were used for hunting, livestock, and farming. * Appellees moved to dismiss under Rule 91a, arguing the claims lacked legal basis, primarily because they were aesthetic-based complaints or did not plead sufficient facts to prove culpability. * The trial court granted the motion, dismissing the case entirely with prejudice. Key Legal Principles * Private Nuisance Law in Texas: The court reaffirmed that "nuisance" itself is not a separate cause of action, but rather a type of legal injury. Liability for a nuisance requires proving both the injury (substantial and unreasonable interference with the use and enjoyment of land) and the culpability of the defendant's conduct (intentional or negligent). * Interference must be more than a "trifle" or "petty annoyance". "Whether an interference is substantial or the effect is unreasonable requires a balancing of nonexclusive factors" including the location of the land, the neighborhood, the social utility of the property’s usage, etc. * Aesthetic Nuisances: Texas law does not permit nuisance claims based solely on aesthetic concerns. * Intentional Nuisance: A defendant intentionally causes a nuisance if the defendant "acts for the purpose of causing the interference or knows that [the interference] is resulting or is substantially certain to result from the defendant's conduct." * Negligent Nuisance: Requires proof of “the existence of a legal duty, a breach of that duty, and damages proximately caused by the breach.” The “unique element” of this claim is “that the defendant’s negligent conduct caused a nuisance, which in turn resulted in the plaintiff’s damages.” * Prospective Damages: Monetary damages cannot be sought for a prospective nuisance, though equitable relief may be available. Contact: Trey Wilson San Antonio Real Estate Lawyer 210-223-4100

Easement Uses Not Set in Stone - Tech Changes Affect Scope

Case: Pedernales Electric Cooperative, Inc. (PEC) v. Samuel S. White, Janette Barlow, Gregory Colon and Stephanie Colon (Landowners) Significance: This case establishes a precedent for broadly interpreting easement language in favor of grantees, especially in the context of public utilities. It reinforces the right of easement holders to adapt their use to technological advancements and meet evolving public needs, as long as such actions align with the overarching purpose of the easement. Court: Texas Court of Appeals, Third District Austin Date Decided: December 11, 2024 Subject: Interpretation of an easement for an electric transmission line; Permissibility of voltage upgrades and associated construction within easement boundaries. Summary: This case examines whether PEC's upgrade of an existing electric transmission line involving increased voltage, taller steel poles and larger conductors, fell within the scope of a decades-old easement agreement. The trial court favored the Landowners, issuing a permanent injunction against the higher voltage and awarding damages. The 3rd Court of Appeals reversed, ruling that the upgrade was permissible under the broad language of the easement. Important Ideas: * The court emphasizes interpreting easement terms according to their plain, ordinary meaning and resolving ambiguity in favor of the grantee . * The court acknowledges the evolving nature of technology and demand, stating that "the manner, frequency, and intensity of an easement’s use may change over time to accommodate technological development." This principle is central to justifying PEC's voltage upgrade. * The court acknowledges the necessity of the upgrade to meet the growing energy demands and improve grid reliability. This public interest factor plays a role in supporting PEC's actions. * The court finds the absence of specific restrictions regarding voltage in the easement agreement to be significant. It highlights that parties are capable of inserting limitations and their omission implies a broader scope for the grantee. Outcome: The Court of Appeals reversed the trial court's judgment, dissolved the permanent injunction against PEC, and rendered judgment in favor of PEC. The Landowners were denied any damages or attorney's fees. Contact: Trey Wilson Real Estate Lawyer in San Antonio

Deed Restrictions and Short Term Rentals - Texas Supreme Court Strikes Again

Case: JBrice Holdings, L.L.C. v. Wilcrest Walk Townhomes Ass'n Court: Supreme Court of Texas Date: April 22, 2022 Summary: This case concerns the legality of a homeowner's association (HOA) prohibiting short-term rentals within a townhome community. The Supreme Court of Texas ultimately ruled in favor of the homeowner, JBrice Holdings, finding that neither the community's deed restrictions nor the Texas Property Code authorized the HOA to impose such a ban. Outcome: The Supreme Court of Texas reversed the lower court's decision, vacated the injunction against short-term rentals, and remanded the case for consideration of attorney's fees. Implications: This case provides important guidance for Texas HOAs and property owners regarding short-term rentals. HOAs seeking to regulate or prohibit such rentals must ensure their deed restrictions explicitly address the issue. Additionally, the case highlights the importance of carefully drafting deed restrictions and the potential consequences of broad language that may unintentionally limit an HOA's authority. Main Themes: 1. Interpretation of restrictive covenants: The court emphasized the importance of strictly construing deed restrictions according to their plain language. Restrictions on property use must be explicitly stated, and courts will not expand their scope through interpretation. 2. Property owners' rights: The court reaffirmed the strong legal preference for protecting property owners' rights to use and enjoy their property. Restrictive covenants are only enforceable if they clearly limit those rights and were agreed to by the owner. 3. Limits on HOA authority: While HOAs have authority to govern communities, their power is derived from and limited by the deed restrictions and applicable statutes. They cannot unilaterally impose restrictions that conflict with these governing documents. Key Facts and Findings: * JBrice Holdings, L.L.C. purchased two townhomes in the Wilcrest Walk subdivision and began offering them as short-term rentals. * The Wilcrest Walk HOA objected to the short-term rentals and adopted rules prohibiting them, arguing they violated the community's residential-use restriction and constituted a nuisance. * The court found that the residential-use restriction, while prohibiting commercial use, did not specify a minimum lease duration. * Crucially, the deed restrictions included a provision stating that, apart from specific limitations within the governing documents, "there shall be no restriction on the right of any townhouse owner to lease his unit." * The court held that short-term rentals constitute valid leases and did not violate the residential-use covenant. * The court also rejected the HOA's argument that it had authority to ban short-term rentals under Section 204.010(a)(6) of the Property Code. This section permits HOA regulation of property use but explicitly states that such regulation cannot conflict with existing deed restrictions. The court found the HOA's rules directly conflicted with the "no restriction" provision regarding leasing. Important Quotes: * Regarding restrictive covenants: "A covenant under review 'may not be enlarged, extended, stretched or changed by construction.'" * Regarding property owner rights: "The law favors owners' rights to use and enjoy their property." * Regarding limitations on HOA authority: "Because a property owner's consent to a restriction is the foundation for its legitimacy, courts will enforce it only if the deed incorporates the restriction or authorizes its adoption at the time of purchase, or when governing law otherwise permits the restriction." * Regarding the "no restriction" clause: "'No restriction' means no restriction."

Pre-Purchase Inspection and Non-Disclosure Claims

Case: George Lesieur v. Timothy & Sandra Fryar, Cynthia Morales d/b/a Morales Realty, and Cynthia Gonzalez Court: Texas Court of Appeals, Fourth Court of Appeals, San Antonio Date: March 10, 2010 Significance: This case highlights the critical role of pre-purchase inspections in real estate transactions. The court's ruling suggests that buyers who conduct thorough inspections, even if those inspections identify potential issues, may have a limited ability to claim reliance and causation against sellers for undisclosed defects. The dissent, however, raises important questions about the degree of similarity required between inspection reports to negate a buyer's claims, emphasizing that seemingly minor wording differences can convey significantly different levels of concern about a potential defect. Main Issue: Did the buyer's pre-purchase inspection negate the elements of causation and reliance in his claims of fraud and misrepresentation against the sellers and their real estate agents regarding undisclosed foundation issues? Themes: * Buyer's Duty to Investigate: The court emphasizes the importance of a buyer's pre-purchase inspection and its impact on claims of reliance and causation. A thorough inspection can limit a seller's liability for undisclosed defects. * "As Is" Clauses: The court touches upon the potential impact of "as is" clauses on a buyer's ability to recover for undisclosed defects, but does not make a definitive ruling in this case. * Third-Party Beneficiary Status: The court analyzes whether a real estate agent can be considered a third-party beneficiary of a sales contract to claim attorney fees. Key Facts: * The sellers (Fryars) had a 2002 inspection report (Adams Report) that noted "signs of structural movement" in the foundation but did not advise the foundation was "Not Functioning or In Need of Repair." * The sellers did not disclose the Adams Report to the buyer (Lesieur) and denied having any inspection reports. * The buyer conducted his own pre-purchase inspection in 2005 (NPI Report), which noted "stress/settlement cracks" but similarly did not advise the foundation was "Not Functioning or In Need of Repair." * The buyer later discovered foundation problems and sued the sellers and their agents for fraud, DTPA violations, and other claims. Court's Holding: * The court held that the buyer's pre-purchase inspection negated causation and reliance as a matter of law. * The court reasoned that both inspection reports provided the buyer with essentially the same information regarding the foundation, even though the wording differed slightly. * The court cited its prior decision in Lim v. Lomeli, stating that a buyer cannot claim reliance if the information about a defect was "equally available" to them. Dissent: * The dissenting judge argued that the differences in wording between the two inspection reports were substantive and conveyed different levels of warning. * The dissent emphasized that the Adams Report noted "structural movement" while the NPI Report did not. * The dissent also pointed to the buyer's affidavit stating he would not have purchased the property had he known about the Adams Report. Contact: Trey Wilson, Real Estate Lawyer in San Antonio www.SanAntonioRealEstateLawyer.com 210-354-7600