- Lessor hereby warrants and agrees to defend the title to the lands herein described, and agrees that the Lessee shall have the right at any time to redeem for Lessor, by payment, any mortgages, taxes, or other liens on the above described lands, in the event of default of payment by Lessor, and be subrogated to the rights of the holder thereof, and the undersigned Lessors, for themselves and their heirs, successors, and assigns, hereby surrender and release all right of dower and homestead in the premises described herein, insofar as said right of dower and homestead may in any way affect the purposes for which this lease is made, as recited herein.
Two sentences, different purposes. Part of the first sentence is a warranty, wherein the lessor guarantees that he/she has title. The last part of the first sentence allows the lessor to pay off any past due lien, mortgage, or taxes that the lessor owes which could impact the lessorâs title, because these items may be superior or prior in time to the lease. An example: the lessor owes taxes and if sold, the lessee would lose their lease. So, the lessee oil company pays the taxes to avoid a foreclosure or tax sale. They then can recover the funds from any royalties owed to the lessee. The last part dealing with dower and curtesy is a clause that says that this is not the lessorâs homestead and in waiving homestead rights, the parties are agreeing that the lease shall have legal priority over any statutory exemption that may be present for a personâs home if the owner were to file bankruptcy.
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But this is for mineral rights leasing. There would be no mortgage, lien, or taxes. There is a house on the land, but⌠I flipped out at âdefault of payment by lessor.â I want to GET paid, not be paying anything. Thank you so much for your explanation.
If your mineral rights are not severed from the surface ownership, then a foreclosure of the surface property would also be a foreclosure of the mineral rights. This clause protects the oil & gas operator from a default by the property owner that might invalidate the lease.
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All clauses are negotiable in the lease and can be changed or deleted. The warranty clause is of some concern in the event such as an earlier deed reserved all or portion of the minerals. You may want to consider either no warranty or limited warranty such as by, through and under lessor. Depending on your state, statutes and case law will affect your warranty language. You mention a house - is that your home?
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Wow. That had never occurred to me that it could be a chunk that hasnât had the mineral rights severed or that a foreclosure of one would affect the other. I was totally confused. So severed doesnât mean totally, every time. I love learning and thank you for your knowledge and time, jvt. It is very much appreciated.
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No, the home is not mine. In fact, Iâm not 100% convinced the mineral rights are mine. The independent landman said the leases were closing so if I didnât agree to sign, he wouldnât even rush me a lease. I had 6 hours to decide. A day later he sent it through Acusignâbahahah. Iâm blonde, not dumb. I am in Minnesota, but this land is in North Dakota. I may have missed an opportunity, but I wonât sign legal stuff in a rushâever. Although a couple of young family members did sign. I am afraid for them. Thank you so much for your input and time, TennisDaze. You guys are so, so, so valuable!
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Well, you can always have a mortgage on mineral rights owned. The company would only come in and pay any mortgage, lien, or taxes if the lessor was in default. If they are not in default, and not in danger of losing their lease, they would take no action.
I was unaware that you could use mineral rights for collateral. And what would be the circumstances as to why you would lose your lease? I was under the impression that once itâs signed, you are locked in tight. I appreciate your input, Tim_dowd. Thank you.
Take two scenarios.
The first is the mineral owner goes to the bank or owns a house with mineral rights underlying the house or acreage. The bank loans money in 2020 (for example) and puts a mortgage on the acreage, which would include the mineral rights underlying the acreage. Then mineral owner signs a lease in 2024. Because the mortgage is prior in time, the mortgagee/bank has superior title. If they foreclosed on the mortgage, then the company would lose its leasehold rights.
Or the mineral owner is in a state where severed mineral rights are taxed. They donât pay the taxes in 2020 and then sign a lease in 2024. The mineral rights get sold due to the tax sale. In this instance, the taxes are superior in title to the lease.
In both instances, the mortgage and taxes are prior in time to the leasehold.
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On oil & gas leases, I always line out, âhereby warrants and agrees to defend the title to the lands herein described, andâ in the first sentence. Most times lessors will request/demand same prior to my offering to do it.
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Thank you so much for your knowledge. I appreciate it tremendously.
Wow, I have never had them offer to void that part. In fact, I thought it would void the lease and its intentions. Thank you.
Remember that an oil and gas lease is a contract and like any other contract everything is negotiable. If you donât like a clause, delete it. The lessor can decide whether they can operate under those conditions. If not, then the lessor and lessee can try to negotiate.
Oil companies use a standard lease form from the American Association of Petroleum Landmen (AAPL). Look for the AAPL designation on the lease. Changes are just crossed out so that it is easy to see any changes to the standard form.
Oil companies pledge minerals to the bank all the time. But again if the minerals are not severed and the loans are with a bank, they will have title to âfee simpleâ not just âfee in surfaceâ. In fact, FSA usually then severs and keeps mineral rights on farms where they foreclose on the fee simple. If you have severed minerals sometimes there are banks or private parties who will loan on the minerals and any proceeds are paid to them to repay the loan. It is not uncommon in some parts of the states.
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