The Texas Attorney General recently issued Opinion KP-0467 (the “Opinion”) addressing “whether a person who negotiates a lease for property for the development of a wind power project on behalf of another, for compensation, must have a license from the Texas Real Estate Commission (“Commission”).”
Put simply, do Texas landmen need a Texas real estate license to negotiate wind leases?
The Attorney General essentially responded “yes”, explaining that the Real Estate License Act requires a person who negotiates or attempts to negotiate the listing, sale, exchange, purchase, or lease of real estate on behalf of another for compensation must hold a license from the Commission.[1]
Section 1101.005 excludes some transactions from the licensure requirement, including those negotiated by licensed attorneys or on-site apartment complex managers.
The request for the Attorney General’s opinion noted that the Commission had historically interpreted the exception involving “the sale, lease, or transfer of a mineral or mining interest in real property” as applicable to other energy sources, such as wind.[2] However, the Opinion concluded that the “mineral or mining interest” exception did not apply to wind leases because “wind” is not a mineral or mining interest based on the ordinary and natural meaning of the words.[3] The Attorney General also noted that Texas Occupations Code Section 954.001, as recently amended by SB 604, establishes that landmen do not need to be licensed attorneys to provide “land services,” which are in turn defined as “negotiating the divestiture of mineral rights or rights associated with other energy sources.” (Emphasis added.) The Attorney General concluded that the statutory amendment revealed a legislative intent to distinguish mineral rights from rights associated with “other” energy sources, such as wind.[4] By extension, Section 1101.005’s exception for “the sale, lease or transfer of a mineral or mining interest in real property” does not extend to cover those other energy sources.
Although the Opinion only addressed a narrow question about wind energy, the Attorney General’s logic would arguably create the same result if applied to hydrothermal, hydroelectric, nuclear, or solar leases[5], such that landmen would also be required get a Commission license to negotiate leases for those projects.
The American Association of Professional Landmen (“AAPL”)’s response to the Opinion was predictably not enthusiastic. A message from the AAPL’s President noted that the Opinion “is not binding on any court and, at present, only serves as guidance to TREC [Texas Real Estate Commission]” and that “AAPL is vigorously working to seek a legislative or regulatory fix.”
The question presented to the Attorney General assumed that the person negotiating “a lease for property of a wind power project” would be doing so “for compensation”.[6] However, the Opinion does not discuss whether the nature of such compensation might affect the requirement for a license. For example, does it matter if the compensation is provided to an employee whose responsibilities include many tasks, including, but not limited to, negotiating wind leases on behalf of an employer that owns the subject property? Does the compensation need to be expressly tied to a commission or specific to the lease negotiation?
Although the Attorney General’s opinion does not analyze the “compensation” component, the exception listed under Sec. 1101.005(8) expressly excludes from the license requirement “an owner or the owner’s employee who leases the owner’s improved or unimproved real estate.” (Emphasis added.) Thus, if a landman is directly employed by the owner of the subject property, arguably their efforts to lease the owner’s real estate (together with attendant wind rights and easements) would not require a license.
Guidance on what constitutes an employee is provided by 22 Tex. Admin. Code Sec. 535.5, which addresses Commission licensing requirements and clarifies that “an independent contractor is not an employee.” Accordingly, a freelance landman would not be considered to be an employee for purposes of the exception available under Sec. 1101.005(8). 22 Tex. Admin. Code Sec. 535.5 also clarifies that an employee is “a person employed and directly compensated by the business entity,” so one may conclude that a landman hired through an agency or third-party company would also not qualify for the Sec. 1101.005(8) “owner’s employee” exception. (Emphasis added.)
As the AAPL pointed out, the Opinion is not binding, merely guidance. Such guidance remains murky, with room for debate; nonetheless, the Opinion does suggest caution to landmen negotiating wind leases (and likely any renewable energy leases) without a Commission license unless they are directly employed by the owner of the subject property.
[1] Opinion at 7.
[2] Opinion at 2-3.
[3] Opinion at 3-4.
[4] Opinion at 4-5.
[5] SB 604 defined “other energy source” as “a natural resource other than a mineral that is necessary to produce energy, including hydrothermal, hydroelectric, nuclear, solar, and wind energy.”
[6] Opinion at 1.