A Montana land man contacted me about a month ago about Rockport’s desire to lease some minor mineral rights in McKenzie County. There were some peculiar mishaps along the way - proposed lease sent to wrong address, odd name of land man company, inclusion of warranty of title clause when it was supposed to be deleted, possible miscalculation of acreage owned - but nothing that I thought was a red flag. The lease terms otherwise looked okay, but then I told him he couldn’t have a wet signature until I had my money. He seemed to recoil at this, but said he would check with Rockport and get back to me. Today, he got back to me and said he couldn’t send my money first, citing some “race to the recorder” excuse. I told him I wouldn’t send a wet signature first, but was open to other suggestions that would protect both parties. The negotiations then ended (which is fine by me as I am getting other offers).
In looking back through my file, I saw where my father sent out a signed lease about 30 years ago, but didn’t get his money and had to deal with that. I don’t want to have to chase someone down in some out of state court, since I don’t live in ND. Years ago, this used to be handled differently (a payment order of some sort lodged with a bank), but the underlying problem remains.
What are other people doing?
How to smartly handle the Money transaction:
It is advisable to talk over this method with the leasing agent to make sure everyone understands.
1. Sign and get the original lease notarized, then send a copy to the leasing agent (as a notice of intention.) You, your banker, or your attorney, must hold the original. 2. The leasing agent should then send you a check. Take it to the bank and deposit it. 3. Once the check has cleared and the funds are available, make and keep a copy of the paperwork for your files and then mail the original signed lease to the leasing agent.
Oil and gas is a small industry, and reputation matters. In places like North Dakota, word gets around quickly.
A lease is not valid without payment. I’ll repeat that because it’s important. A lease is not valid without payment.
Also remember that a lease is not a contract until you sign it. Until the landowner signs the lease, there is no binding agreement. Why would they give you money before you make an agreement? Both sides have to trust each other.
North Dakota is a race-notice state, so recording documents promptly matters. Companies are not going to send thousands of dollars to someone who only says they “plan” to sign a lease. That would not make sense.
Companies should send a letter agreement or purchase and sale agreement (PSA) along with the lease, I would suggest not working with a company that does not include one. That document states that if title checks out, the company agrees to pay you and you agree to convey the interest. Once that agreement is signed by both parties, it becomes a legally binding contract outlining the terms of the transaction.
A common process is this: send the company a good scanned copy of the signed lease and letter agreement, so they can record it and begin their title review. The company conducts due diligence to confirm ownership. Once that is verified, they issue payment, and then you send in the original signed documents.
Landman 101: a lease is not valid without payment or a signature, takes trust from both parties.