I’m reviewing several family mineral interest rights. Many were leased in 2007-2008 with a 3 year lease with 2 year option. No follow up correspondence came about the 2 year option. Should I ask for a release from the lessee? How are the options normally handled? I know the options are not desirable, but I was not involved in the decisions at that time.
If the time for exercising the option has passed and they have not paid the extension bonus or otherwise notified you they were exercising the option, then one of two things has occurred: (1) no wells are currently producing on the leased premises or lands pooled therewith, so the lease terminated under its own terms; or (2) there is a producing well on the leased premises or lands pooled therewith, and therefore, the lease is extended into the secondary term without the need to exercise the option. If No. 1 applies, then you should ask for a release of the lease to make sure your record title is clear. If No. 2 applies then you should check to see if your lease has a Pugh clause, continuing development clause or retained acreage clause that would result in part of the acreage being released.
Thanks Ben!
The answer to your question is absolutely, YES! Either by plan or just oversight I've never seen a release without asking and most of the time getting a letter from an attorney. First step is to send a certified, return receipt letter stipulating 15 days from time of receipt. This is another category that should be covered in the original lease, with penalties, if possible; however, most leases forget this important category. When you get the release, make sure it is recorded in the county records, oherwise other searchers will not know that your property is open and ready to lease.
Ben Elmore said:
If the time for exercising the option has passed and they have not paid the extension bonus or otherwise notified you they were exercising the option, then one of two things has occurred: (1) no wells are currently producing on the leased premises or lands pooled therewith, so the lease terminated under its own terms; or (2) there is a producing well on the leased premises or lands pooled therewith, and therefore, the lease is extended into the secondary term without the need to exercise the option. If No. 1 applies, then you should ask for a release of the lease to make sure your record title is clear. If No. 2 applies then you should check to see if your lease has a Pugh clause, continuing development clause or retained acreage clause that would result in part of the acreage being released.
I never thought about adding a clause in the lease. I'll be doing everything to avoid an option, but will attempt to include something if I have not other choice.
Thanks for the input!
You want a clause in your lease stipulating that a Release be filed of record even if you do not agree to an option. Keeps title nice and neat for the next guy that wants to make an offer to you.