Is it customary for a Lessee to have a different amount on the lease contract than what the agreed upon price per acre was? We are being told that this standard practice to keep other companies in the dark about what the Lessee is paying per acre. The contract has everything else correct, 1/5 royalties and $300 per acre if the Lessee takes an additional 2 year option. Our lessee has stated that the check will reflect the agreed upon amount.
Some color around the transaction. 175 acres in Young County, Tx. Price offered is $200 per acre and $300 if Lessee opts for additional 2 years. 1/5 royalties.
Since we are in a different state than the Lessee, what is the common practice for exchanging contract for funds? We aren't signing anything until we see the amount is what was agreed upon. Bank draft?
What amount was reflected on the lease contract. Normally, the first wording says "Ten and more" Dollars....... This is normal in all of my lease contracts but I recieve seperate paperwork reflecting all other info including the Term;Royalty;Bonus. Be very careful about the way conduct your lease transaction. The best way is to have money in hand when the lease is delivered. This prevents the lessee from doing a "cold draft" act on you. Make sure you check out this lessee to make sure of their past business practices. There are several ways to go about this and one is to let your let your bank hold the original lease (you would provide them paperwork with (Copy) on the front page. When the 30 days or ever how long they say, and you are paid, this transaction would be conducted thru your bank and the bank would mail the original to the lessee when the money is deposited. This is somewhat a pain but it is not as bad if you aren't paid and have to sort out the mess via possibly an attorney. The peace of mind is worth the extra effort.
Charles, thank you very much for your reply. Ten & no/100 was the amount on the contract. As far as the money is concerned, your saying we let our bank have the original lease, (do we send a copy to the lessee?) have the Lessee send us the money. Once the money is in our bank we have the bank send the original to the Lessee? Makes sense.
David:
This is a safe way to conduct business. If you send them a notorized/signed copy, record the lease and decide not to pay, you have a legal mess on your hands. I have done it both ways, fortunately, I've never had problems but there is that chance. Be ready for them to balk on this method but explain your position as they are fully aware of "cold drafts". I have been in leasing since 2004 and keep up with this business on a dailey basis and the real cold draft cases have been very few but again, it's a peace of mind for you. Good luck.
David Wiseman said:
Charles, thank you very much for your reply. Ten & no/100 was the amount on the contract. As far as the money is concerned, your saying we let our bank have the original lease, (do we send a copy to the lessee?) have the Lessee send us the money. Once the money is in our bank we have the bank send the original to the Lessee? Makes sense.
One more question if you don't mind. What is a "cold draft"
David:
Cold drafting is when the lessor signs and returns to the lessee a copy of the lease, whereas the lessee records the lease but does not pay the lessor for the lease. Again, in all my years of following the leasing process, I haven't seen this occur very often but the gamble is real and it becomes a nightmare for the lessor to correct the matter.
David Wiseman said:
One more question if you don't mind. What is a "cold draft"
Thanks Charles, I appreciate your expertise!
David,
I agree with the info Charles has been giving you.
I have not personally seen cold drafts happen. However it has been in the news recently in Michigan, Texas, and Colorado.
http://www.denverpost.com/business/ci_20295827/chesapeake-energy-ca...
It is enough of an issue that I'm in the middle of the last deal I signed and I'm still holding the original documents waiting on a check. Others I have not worried about and deposited the draft, but I'm doing this one differently.
If you have 175 acres instead of just a small part of it, I'd suggest getting a professional involved.
I'm unsure of the bonus amounts in your area, but you really need to negotiate some clauses in the lease. I'm not a fan of the option. You have nothing to gain and everything to lose with it. You may not be able to close the deal without it, but be sure and consider the consequences of it in your negotiation process.
I've had an inquiry from Vitruvian and others regarding leasing minerals in Young County. Anyone else have any background information or experiences they'd like to share?