2015 Legislative Changes

The 2015 Texas Legislature passed new laws affecting real estate. Some directly affect real estate practitioners. Most of the ones described here took effect Sept. 1, 2015.

Re​al Estate Lice​​nsing Act

For real estate licensees, the discussion of new laws starts with changes to the Real Estate Licensing Act found in Section 1101 of the Texas Occupations Code. The first deals with name changes.

Real estate salespersons are now called real estate sales agents. These agents are no longer associated with a licensed broker but are sponsored by one. Sponsoring brokers must now attend at least six classroom hours of broker responsibility courses approved by the Texas Real Estate Commission during the term of their current license. Core real estate courses vanished, replaced by qualifying real estate courses. Finally, a licensee does not act as a broker or sales agent but instead engages in real estate brokerage.

Activities requiring a real estate license changed. A license is now required for anyone dealing in options on real estate including a lease-to-purchase or buying, selling or offering to buy or sell options in real estate. A license is also required for someone who advises or offers advice to an owner of real estate concerning the negotiation or completion of a short sale.

On the flip side, a license is not required for anyone who engages solely in the following activities:

• Constructing, remodeling or repairing a home or other building;
• sponsoring, promoting or managing or otherwise participating as a principal, partner or financial manager of an investment in real estate; or
• entering an obligation to pay another person that is secured by an interest in real property.

Perhaps the most controversial change appears in the exemptions from the licensing requirements. The statute uses a double negative to determine when a license is needed. Here is how it reads. “This chapter (the Real Estate Licensing Act) does not apply to an attorney-in-fact authorized under a power of attorney to conduct not more than three real estate transactions annually.”

One might conclude a real estate license is required for the first transaction if the power of attorney authorizes the attorney-in-fact to enter more than three real estate transactions annually, which is normally the case. If this is true, does the statute invalidate the transaction(s) and/or subject the person to a violation of the licensing act?

This restriction appears in stark contrast to the promulgated Statutory Durable Power of Attorney Form found in Section 752.051 of the Texas Estates Code and the description of what constitutes real estate transactions found in Section 752.102. Neither places a limit on the number of authorized real estate transactions.

For more information regarding powers of attorney and other related instruments, see Center publication End-of-Life Documents.

​While you are there, note that the Directive to Physicians Form changed slightly on Sept. 1, 2015. Now, when a life-sustaining treatment is deemed medically inappropriate, the patient or surrogate may request a ten-day extension in many situations to seek another facility that will provide treatment.

Here is a surprising new disclosure requirement. Did you know that water levels in lakes fluctuate? Evidently, that is not an obvious fact. Starting Sept. 1, 2015, sellers of residential or commercial property adjoining an impoundment of water, including a reservoir or lake, constructed and maintained under Chapter 11 of the Texas Water Code and having a storage capacity of at least 5,000 acre-feet at its normal operating level must give purchasers written notice that the water level fluctuates for various reasons including droughts or floods.

If the notice is not given on or before the effective date of the contract, the purchaser may terminate it within seven days after the purchaser receives notice from the seller or from another person. The seller may be sued for misrepresentation if the notice is not given when the seller had actual knowledge of the fluctuations. The new law is found in Section 5.019 of the Texas Property Code.

The statute raises an interesting question regarding the definition of the word adjoining. This term received considerable attention in the 1927 case of Broun v. Texas & N.O.R. Co. (295 S.W. 670). The court attempts to distinguish the meaning of adjoining from adjacent. Adjoining means touching whereas adjacent means near, close or contiguous, but not touching. “That which is adjacent may be separated by some intervening object.”

Section 5.008(b) of the Texas Property Code contains another required notice effective Jan. 1, 2016. The statute amends the seller’s residential disclosure form to include a statement of whether any portion of the property is in a groundwater conservation district or a subsidence district. The seller must disclose only what he or she knows. There is no duty to investigate.

Minerals​, For​​eclosures and Surface Rights

Some interesting legislation and case law address the rights of purchasers of mortgage property at foreclosure sales when both the surface and minerals are subject to the same lien. They change existing law to some degree. Here are the rules before the law went into effect on Jan. 1, 2016.

If a lender forecloses on mineral property having an oil and gas lease on it, the lease may or may not terminate. As a rule, first-in-time, first-in-right applies. If the mortgage was entered and recorded on the property before the lease was taken, the foreclosure terminates the lease. However, if the lease precedes the mortgage, the foreclosure does not terminate the lease. An exception exists for the first scenario.

If the company taking an oil and gas lease on mortgaged property gets a subordination agreement from the lender, a foreclosure does not terminate the lease. Basically, the lender agrees to place its rights below that of the oil company in the event of a foreclosure.

Chapter 66 changes the rules for unsubordinated leases placed on mortgaged property. The new statute provides that a subsequent foreclosure does not terminate the lease. Purchasers at the foreclosure sale begin receiving subsequent royalty and other payments due under the existing lease. However, the foreclosure terminates any surface rights the oil company has to operate the lease when the surface and mineral estate are subject to the same lien. The oil company must secure a surface-use agreement from the new owners.

On August 19, 2015, the San Antonio Court of Appeals rendered a decision in favor of surface owners who own no minerals in Lightning v. Anadarko. Anadarko obtained a lease on Property A that prohibited drilling operations. Consequently, Anadarko secured a surface-use agreement from an adjoining surface owner of Property B to drill horizontally and complete wells on Property A. No production was to be taken from Property B.

Lightning held an oil and gas lease on Property B. It sued for an injunction alleging a trespass for Anadarko’s drilling through its leased acreage without permission. The court ruled in favor of Anadarko. No trespass occurred. While a surface owner owns no minerals, the surface owner still controls the below-ground structures containing the hydrocarbons.

The court quoted from an earlier Texas case of Springer Ranch Ltd. v. Jones in which it held the “ownership of the hydrocarbons does not give the mineral owner ownership of the earth surrounding those substances.”

For more information on the rights of surface owners without minerals, see Center publications Minerals, Surface Rights and Royalty Payments and “Surface Tension: Accommodation of the Estates Doctrine.”

Lando​​wner Liabil​​ity

Licensees practicing in smaller towns and rural areas may find a new statute affecting landowner liability interesting. Again, some background information may be necessary to appreciate its significance.

One of the ways landowners may limit liability to guests entering the property, whether paying or not, is to get waivers (save-and-hold-harmless agreements) from them. The guests, in essence, agree to hold the landowner harmless (meaning they will not sue) if they are injured on the property because of the landowner’s negligence. The agreement must meet the following five requirements.

• The parties have equal bargaining power;
• the guests receive consideration in return for signing the agreement, such as the right to enter;
• the agreement states the guests release the landowner for his or her negligent conduct (the express negligence rule);
• the agreement gives the guests fair notice of what they are signing; and
• the agreement is conspicuous, not hidden in the fine print.

Waivers have limitations. They will not protect landowners from their intentional, malicious or grossly negligent conduct. Also, no valid waivers may be taken from minors, not even from the minor’s parent, guardian or conservator on behalf of the minors.

A new statute found in Chapter 75A of the Texas Civil Practices and Remedies Code (CPRC) addresses some of the limitations regarding waivers for minors. Effective June 19, 2015, landowners may get effective waivers on behalf of minors from the parent, managing conservator or guardian before the minors enter the premises for educational or recreational purposes. These are referred to as “agritourism activities” in the new statute addressing “agritourism.” The guests are called “agritourism participants,” and the landowners the “agritourism entity.”

The statute defines recreational activities to include activities associated with enjoying nature or the outdoors, such as hunting, fishing, swimming, biking, picnicking and boating (Section 75.001 CPRC).

The statute describes two ways for landowners to secure protection.

First, landowners may post and maintain a sign at a clearly visible location on or near any premises where the educational or recreational activity occurs. The sign must contain the following language: WARNING. UNDER TEXAS LAW (CHAPTER 75A, CIVIL PRACTICE AND REMEDIES CODE), AN AGRITOURISM ENTITY IS NOT LIABLE FOR ANY INJURY TO OR RESULTING FROM AN AGRITOURISM ACTIVITY.

Second, the landowner obtains a signed, written agreement and warning statement from the guests regarding the activity from which an injury may arise. The statement must contain the following heading and language: AGREEMENT AND WARNING. I UNDERSTAND AND ACKNOWLEDGE THAT AN AGRITOURISM ENTITY IS NOT LIABLE FOR ANY INJURY TO OR DEATH OF AN AGRITOURISM PARTICIPANT RESULTING FROM AGRITOURISM ACTIVITIES. I UNDERSTAND THAT I HAVE ACCEPTED ALL RISK OF INJURY, DEATH, PROPERTY DAMAGE AND OTHER LOSS THAT MAY RESULT FROM THE AGRITOURISM ACTIVITIES.

The agreement must meet the following requirements.

• It must be placed on or in a separate document apart from any other agreements between the landowner and participant. The statute implies the agreement can be included with a warning, consent or an assumption-of-the-risk statement between the parties, but the wording is ambiguous.
• It must be printed in not less than ten-point bold type.
• It must be signed before an adult participates in the agritourism activity.
• If the participant is a minor, it must be signed by the minor’s parent, managing conservator or guardian before the minor participates in the activity.

Because the statute makes no mention of landowners receiving protection for injuries or death to minors by posting warning signs on the premises, landowners would be wise to secure the agreement and warning statement from the entering parties when minors are involved if just one of the two procedures is used. The most prudent practice would be to comply with both procedures.

Likewise, even though the statute makes no mention of the signs or the agreement being in capital letters, it would be prudent to do so. Both appear in caps in the statute.

The statute also mandates that:

• agritourism includes displaying exotic animals to the public on agricultural land,
• the risk of injury mentioned in the agreement and warning statement includes emotional stress, and
• Chapter 75A applies without regard to compensation.

The statute does not give blanket protection to landowners. Landowners are still liable for an intentional injury or one that is proximately caused by the landowner’s negligence, evidencing a disregard for the participant’s safety (gross negligence). Likewise, landowners are still liable when they knew or reasonably should have known that a:

• dangerous condition existed on the land, facilities or equipment used in the activity or
• particular animal used in the activity had a dangerous propensity and the fact was not disclosed to the participant.

Finally, landowners are liable if they fail to train employees involved in an agritourism activity or train them improperly.

Disclosing or warning guests of dangerous conditions that are known or should have been known by the landowner regarding the land, facilities or equipment apparently does not relieve the landowner of any liability. The dangerous conditions must be corrected, not just disclosed, to avoid liability.

What is so significant about the new statute?

Landowners may now secure waivers for minors. Before the statute passed, liability insurance gave landowners the only protection for minors killed or injured on the property. Landowners may now secure enforceable waivers for minors who come onto their agricultural land for educational and recreational activities for school, church, charitable or social events. Apparently, the parent, guardian or conservator do not have to be present. Likewise, the signature of one parent appears to suffice.

The activity must be conducted on agricultural land. This is land suitable for growing plants and fruits for human or animal consumption or suitable for keeping domestic or farm and ranch animals for use or profit. The term premises, where the warning signs may be posted, includes the land, roads, water, watercourses and private ways. The term also includes the buildings, structures, machinery and equipment attached or located on the land, roads, water, watercourses and private ways.

The new statute makes no reference as to how it interacts with the attractive nuisance doctrine. Chapter 75 of the CPRC, better known as the recreational guest statute, states that the attractive nuisance doctrine still applies to anyone under the age of 16.

For more information on landowner liability, see Center publication The Texas Deer Lease.

New Deed: Tr​ansfer​​ on Death

As of Sept. 1, 2015, Texans have a new vehicle for transferring an interest in real property found in Chapter 114 of the Texas Estates Code (TEC). The new statute, better known as the Texas real property transfer on death act (TOD), represents a way to deed real property today but delay the transfer until the grantor dies. In the meantime, the grantor retains the right to revoke the deed at any time before his or her death. The new procedure avoids probate.

To be effective, the deed must state the transfer takes effect at the grantor’s death. It must be executed with the same formalities as a regular deed and be recorded before the grantor dies. However, the deed requires no consideration and need not be delivered to or accepted by the grantee during the grantor’s lifetime. The deed cannot be executed on behalf of the grantor under a power of attorney.

The statute details several ways to revoke the TOD including recording a subsequent instrument specifically revoking the TOD or recording another TOD to another person. Divorcing the grantee revokes the TOD as does transferring all interests in the property to another person prior to the grantor’s death.

The deed has no effect on the grantor’s present interest in the real property. The TOD does not preclude the grantor from transferring or mortgaging the property. It will not trigger a due-on-sale clause, affect the rights of the grantor’s creditor or create any legal or equitable interests in the grantee.

Grantees taking the property take subject to all matters of record at the time of the grantor’s death. For purposes of evaluating creditor’s claims, the TOD is deemed to have been recorded at the grantor’s death.

Section 114.151 of the TEC contains a sample deed form. Section 114.152 contains an optional form for revoking a TOD.

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Fambrough (judon@tamu.edu) is a member of the State Bar of Texas and a lawyer with the Real Estate Center at Texas A&M University.