1. (a) Lands and minerals subject to lease.

   1. (1) Any survey or portion of a survey of the Relinquishment Act land, as this term is uniquely defined in §10.1(a)(7) of this title (relating to Definitions; Exploration and Development Guide), is subject to lease under this section.
   2. (2) All minerals are subject to lease by the surface owner as agent for the state. For purposes of this section, minerals include all substances commonly classified as minerals even though they may be extracted by methods which destroy the surface. Minerals other than oil and gas may be leased together or separately. Oil and gas must be leased under the terms of Chapter 9 of this title (relating to Exploration and Development).

2. (b) Authority and duties of agent.

   1. (1) Prohibition against self-dealing. A surface owner may not lease to himself, herself, or itself, either directly or indirectly. A surface owner may not acquire by assignment a lease executed by the surface owner. A surface owner will be considered to have engaged in self-dealing if the surface owner leases to the following persons or entities or if the lease executed by the surface owner is assigned to the following persons or entities:

      1. (A) a nominee;
      2. (B) any corporation or subsidiary in which the surface owner is a principal stockholder, or an employee of such a corporation or subsidiary;
      3. (C) a partnership in which the surface owner is a partner, or an employee of such a partnership;
      4. (D) if the surface owner is a corporation or a partnership, a principal stockholder of the corporation or a partner of the partnership, or any employee of the corporation or partnership;
      5. (E) a fiduciary representing the surface owner, including, but not limited to, a guardian, trustee, executor, administrator, receiver, or conservator; or
      6. (F) a family member or to anyone related to the surface owner by marriage, blood, or adoption. within and including the second degree of consanguinity or affinity.
   2. (2) Fiduciary duty of agent. A surface owner is the state's agent and owes the state a fiduciary duty and a duty of utmost good faith. A surface owner must fully disclose any facts affecting the state's interest and must act in the best interest of the state. Any conflict of interest must be resolved by putting the interests of the state before the interests of the surface owner. In addition to these specific duties, the surface owner owes the state all the common-law duties of a holder of executive rights.
   3. (3) Consequences of a breach of the surface owner's fiduciary duty or a violation of the prohibition against self-dealing. When a surface owner breaches any duties or obligations owed to the state by law, any suit relating to such breach shall be filed in a district court in Travis County. Such a suit may seek removal of the owner of the soil's agency rights in addition to any other remedies authorized by statute or by common-law.
   4. (4) Penalty assessment for breach of the surface owner's fiduciary duty. A penalty of 10% shall be imposed on any sums due the state because a surface owner breaches a fiduciary duty. The imposition of this penalty will not limit the right of the state to obtain punitive damages, exemplary damages, or interest. Any punitive damages or exemplary damages assessed by a court shall be offset by the 10% penalty imposed by this subsection.

3. (c) Lease negotiation procedure.

   1. (1) The surface owner is authorized to act as the state's leasing agent with any person, firm, or corporation desiring to develop the permanent school fund's minerals.
   2. (2) The lease shall be negotiated by the surface owner and the prospective lessee on a form prepared and furnished by the GLO, which will incorporate the terms and conditions prescribed by the SLB.
   3. (3) The proposed lease shall be submitted to the GLO for approval prior to recording the lease in the county records.

4. (d) Approval and filing of lease.

   1. (1) The commissioner may reject or refuse for filing any lease deemed not in the best interest of the state.
   2. (2) Upon rejection of a proposed lease by the commissioner, the prospective lessee will be given written notice which will specify the reasons for the rejection and any changes, deletions, or additions which would render the lease acceptable. The prospective lessee may request reconsideration or appeal a rejection of a lease under the hearings procedures set out in Chapter 4 of this title (relating to General Rules of Practice and Procedure).
   3. (3) Upon receipt of approval of the lease, the prospective lessee shall finalize the lease and have the lease recorded in the county or counties in which the land lies and shall file a certified copy of the lease with the GLO. Leases are not effective until approved and filed in the GLO.
   4. (4) The state's share of the approved bonus payment and the filing fee prescribed by §1.3 of this title (relating to Fees) shall be submitted along with the certified copy of the lease. Any lease is void unless it recites the actual consideration paid or promised for the lease.
   5. (5) A surface owner, as the state's agent, owes the state a fiduciary duty. See subsection (b) of this section. This fiduciary responsibility must be of paramount concern when a surface owner enters lease negotiations.

5. (e) Lease terms and conditions.

   1. (1) Lessee shall pay bonus, rentals, royalties, and other lease considerations as follows.

      1. (A) On leases filed before September 1, 1987, lessee shall pay to the state 60% of all bonuses, rentals, and royalties and other considerations agreed upon. Lessee shall pay to the surface owner 40% of all consideration agreed upon.
      2. (B) On leases filed on or after September 1, 1987, lessee shall pay to the state 80% of all consideration agreed upon. Lessee shall pay to the surface owner 20% of all bonuses, rentals, and royalties.
      3. (C) On leases filed after September 1, 1999 for the exploration and production by surface mining of coal, lignite, potash, sulphur, thorium or uranium, lessee shall pay to the state 60% of all bonus, rentals, royalties and other considerations agreed upon. Lessee shall pay to the surface owner 40% of all consideration agreed upon.
   2. (2) In the event of production, the state must receive not less than one-sixteenth of the value of the minerals produced. The combined royalty payable to the surface owner and the state will be expressly provided for in the lease negotiated by the surface owner.
   3. (3) All royalties and other payments accruing to the state shall be paid to the state through the commissioner at Austin, and shall be deposited to the PSF.
6. (f) Reports, assignments, releases, inspection, forfeitures, and reinstatements. Leases issued under this section will be governed by all general provisions found in §10.7 of this title (relating to Conduct of Exploration and Mining Operations) and §10.8 of this title (relating to Assignments, Releases, Reports, Royalty Payments, Inspections, Forfeitures, and Reinstatements). However, a lease issued under this section cannot be assigned to the surface owner who executed the lease. See subsection (b)(1) of this section.

7. (g) Waiver of agency rights.

   1. (1) The surface owner may waive the surface owner's right to act as the state's agent for leasing all the state's minerals except oil and gas. Such a waiver must cover all the state's minerals except oil and gas and must be on the GLO waiver form. The waiver must be filed for record in each county where any portion of the land is situated. Before such waiver can be effective, a certified copy of each recorded waiver must be filed in the GLO along with a title opinion showing that he is a surface owner of the relevant land.
   2. (2) If agency rights are waived under this subsection, the minerals will be subject to prospect permit and lease under §10.2 of this title (relating to Prospect Permits on State Lands) and §10.3 of this title (relating to Mining Leases on Properties Subject to Prospect).
   3. (3) A surface owner who waives agency rights under this subsection, or an assignee, heir, or anyone else succeeding to all or part of the surface owner's interest in the tract will not be the state's agent and will not receive compensation under a prospect permit or lease for as long as a prospect permit or lease issued under §10.2 of this title (relating to Prospect Permits on State Lands) or §10.3 of this title (relating to Mining Leases on Properties Subject to Prospect) remains in effect.
   4. (4) Upon expiration, termination, or forfeiture of a lease or permit, the agency rights of the surface owner shall be ipso facto reinstated.
   5. (5) If the surface owner conveys the surface owner's interest in the tract after waiving agency rights, but before any prospect permit or lease has been issued, the succeeding surface owner will be entitled to act as the state's agent for leasing the state's minerals.
   6. (6) A waiver executed under this subsection may be revoked if there is no prospect permit or lease in effect at the time the waiver is revoked and if, while the waiver was in effect, the surface owner did not act in a manner that compromises the surface owner's ability to resume all duties and responsibilities as the state's agent. Such revocation must be in writing and filed for record in each county in which any portion of the land is located. A certified copy of the recorded revocation instrument must be filed in the GLO before it is effective.
   7. (7) The fee for a prospect permit issued under this subsection will be set by the commissioner. This fee will be based on the fair market value of the bonus and annual rental customarily paid for leasing similar minerals in the area, prorated for the one-year term of the permit. The terms of a lease subsequently issued under this subsection will be negotiated. These terms will be based on the results of exploration activities and other appropriate data.
   8. (8) In exceptional circumstances the commissioner may allow the waiver of agency rights under this subsection as to less than all the state's minerals except oil and gas. For the commissioner to allow a more limited waiver of agency rights, a showing that such a limited waiver is in the best interests of the state will be required.
8. (h) Leasing procedure when agent cannot be located. If a potential lessee cannot locate a surface owner, such lessee can follow the procedures set out in the Texas Natural Resources Code, §52.186. Once these procedures have been followed, Relinquishment Act land will be leased for minerals other than oil and gas through the prospect permit and leasing procedures found in §10.2 of this title (relating to Prospect Permits on State Lands) and §10.3 of this title (relating to Mining Leases on Properties Subject to Prospect). The state will receive all the consideration paid under such a lease.

9. (i) Leasing procedure when agent's rights are forfeited.

   1. (1) When a surface owner's agency rights have been forfeited under subsection (b)(3) of this section, the land shall be subject to lease for minerals other than oil and gas under the procedures set out in §10.1 of this title (relating to Definitions; Exploration and Development Guide) and §10.2 of this title (relating to Prospect Permits on State Lands).
   2. (2) When a new lease is executed under subsection (i)(1) of this section, the surface owner shall not be entitled to any share of the revenue generated by such lease, but the surface owner's agency rights will be ipso facto reinstated upon expiration of the new lease.
   3. (3) If no new lease is executed within one year of the date of the forfeiture of the agency rights, the commissioner may, in his discretion and for the best interests of the PSF, reinstate the surface owner's agency rights.

Source Note:The provisions of this §10.5 adopted to be effective March 22, 1989, 14 TexReg 1280; amended to be effective May 26, 1992, 17 TexReg 3473; amended to be effective July 11, 2004, 29 TexReg 6308.