If you top lease your minerals and drilling operations begin prior to the lease expiration date this would, in most cases, null and void the top lease offer. What if you recieve a check for a partial down payment from the top leasing party within a week after the well is spudded?
Does the spudding of the well act to extend the original lease? If so, then the top lease is still void and you would not be entitled to the check. I would counsel you to contact the top lessee and get their written consent to deposit the check before doing so. Otherwise, the top lessee may realize their mistake and come after you for the down payment.
Charles, I would say that the toplease was conditional, did the toplessor receive your toplease before the well was spud and the check arrived ? The toplessor knew there was a chance that the well would be spud and invalidate their toplease and were willing to take that chance. I would say that if you had delivered an executed toplease to the potential lessee prior to either of you learning of the spudding of the well, that the check is yours and if they cancelled it I would hand the hot check to law enforcement because you did your part, delivering the lease, you can't help what neither of you knew.
rw;
The paperwork was signed/delivered in April regarding the top lease for a lease expiring 7/27/12. Well was spudded on 6/8/12 and check for 10% down scheduled to arrive this week (no check as of yet). My question is that if this check actually arrives, what would be the appropriate action to take and I believe you answered that on the last part of your post. Most likely, no check will arrive as these companies keep up with such happenings but that scenerio could play out.
r w kennedy said:
Charles, I would say that the toplease was conditional, did the toplessor receive your toplease before the well was spud and the check arrived ? The toplessor knew there was a chance that the well would be spud and invalidate their toplease and were willing to take that chance. I would say that if you had delivered an executed toplease to the potential lessee prior to either of you learning of the spudding of the well, that the check is yours and if they cancelled it I would hand the hot check to law enforcement because you did your part, delivering the lease, you can't help what neither of you knew.
Charles, I guess you weren't harmed but I would have had expectations. It could be that they delayed the sending of the check until they knew whether the well would be spud or not and that is dirty pool, having your cake and eating it too, anyway you want to describe it. In fact you were harmed if you paid for notary service or postage. It may not be enough to file suit over, but I would never deal with that company again if the check doesn't arrive and I would not give then a favorable reveiw or recommend that company to anybody else. They sound like the scam artists that try to get free leases, if they don't pay.
rw:
Again, the check was due to arrive this week so time will tell. I agree that it takes up my time getting the paperwork on my end in order and I even told them that this well was on schedule to be drilled prior to the lese expiration but they insisted on continuing with the top lease. I was also being rewarded with a much higher % royalty in the deal. It was really a good deal.
r w kennedy said:
Charles, I guess you weren't harmed but I would have had expectations. It could be that they delayed the sending of the check until they knew whether the well would be spud or not and that is dirty pool, having your cake and eating it too, anyway you want to describe it. In fact you were harmed if you paid for notary service or postage. It may not be enough to file suit over, but I would never deal with that company again if the check doesn't arrive and I would not give then a favorable reveiw or recommend that company to anybody else. They sound like the scam artists that try to get free leases, if they don't pay.
If the top lessee is keeping tabs on that well, I seriously doubt they will send you a check unless there is some mix-up in their accounting department. Having said that, was there a deadline in the top lease for them to make the initial downpayment? If there was, and it was before the 6-8-12 spud date, then you have a stronger case that you are entitled to the check, especially given that they were informed by you that the well was potentially in line to be drilled before the end of the primary term of the underlying lease.
Ok Charles, the lesson I take from this is no top lease unless the top lessee executes 2 copies, one for your records and one for you to return by a specified date or no top lease, payment to be made within ten days and there should be a clause for damages if you have to file suit to get paid. Take the grey area free lease bullstuff out of it. Not that I intend to ever lease again since my acres are in an area where I do not have to. This leasing garbage makes being a non-consent carried interest look easy.
Ben/rw:
The down payment was due 6/18 and spud date was 6/8. Didn't get the check today and probably won't get it as you stated, these companies keep a close watch on the happenings. rw: As I stated earlier, I was nearly certain this well would be drilled before the lease expires but it was really a win win situation for me in regards to the bonus and % royalty. I totally agree with you about the paperwork trail in top leasing but in the future (on the area where the bulk of my minerals are located), I will allow the leases to expire and negotiate from there. I would have done here but my thinking was if they were willing to take that chance and pay money down, after being told the well would be drilled, it only cost me a trip to my CPA (no charge) and they paid the postage.
r w kennedy said:
Ok Charles, the lesson I take from this is no top lease unless the top lessee executes 2 copies, one for your records and one for you to return by a specified date or no top lease, payment to be made within ten days and there should be a clause for damages if you have to file suit to get paid. Take the grey area free lease bullstuff out of it. Not that I intend to ever lease again since my acres are in an area where I do not have to. This leasing garbage makes being a non-consent carried interest look easy.
Earlier this year, my wife and I signed a top lease (with Diamond Resources) on one of our interest's' in Divide County. They offered 10% to sign and said that would be ours to keep even if our current lease did not expire. We kept tabs and upon contacting Diamond Resouces, the told us that drilling operations did start, and that our current lease would remain in effect. They did send us the 10% as we had agreed upon.
Donald:
Thanks for sharing your experience. I still have not recieved the downpayment and acutally, not expecting to hear back from them. It's no big deal, even though, I wouldn't turn down the money. I knew that this top lease would never materialize since I was confident that this well would be drilled in June. Glad to hear that your deal turned out profitable. Actually, I am not a fan of top leasing as I believe that if your lease expires, your negotiationg power grows. This top lease was more or less doomed from the start but when offered the deal, I said "what the heck". Thanks again.
Donald Anglin said:
Earlier this year, my wife and I signed a top lease (with Diamond Resources) on one of our interest's' in Divide County. They offered 10% to sign and said that would be ours to keep even if our current lease did not expire. We kept tabs and upon contacting Diamond Resouces, the told us that drilling operations did start, and that our current lease would remain in effect. They did send us the 10% as we had agreed upon.
Charles,
I found this forum after we had signed that top lease. If I had found this forum beforehand, I may not have signed it. Though, after we did, we wanted our current lease to expire. The top lease had a higher royalty (20% v 15%) and a 1000.00 dollar per acre bonus! We received a 125.00 per acre bonus when we signed in 2007(Oh well). This forum has also led to me discovering that we have a producing well in one of our other interest's, I recently contacted them to let them know about us, and we just received our division orders!
We will be glad to accept any of the gifts we receive...
Donald:
Sounds like you found an unknown treasure. As you said, these are nice suprises. As I stated earlier, the best scenerio is to let a lease expire and improve your negotiating power. I would never have top leased but I just took a gamble on a small area we have in ND and since the % royalty was much higher than we currently have, I felt it was worth the time, even though, I was nearly certain that the well would be drilled prior to the lease expiration date. Good luck on your future negotiations but remember, let the leases expire the market your minerals.
Donald Anglin said:
Charles,
I found this forum after we had signed that top lease. If I had found this forum beforehand, I may not have signed it. Though, after we did, we wanted our current lease to expire. The top lease had a higher royalty (20% v 15%) and a 1000.00 dollar per acre bonus! We received a 125.00 per acre bonus when we signed in 2007(Oh well). This forum has also led to me discovering that we have a producing well in one of our other interest's, I recently contacted them to let them know about us, and we just received our division orders!
We will be glad to accept any of the gifts we receive...
Dear Ben,
Given the so limited information, I could surmise that the top lease violated the Rule against Perpetuities and was void on its face. What is your take on that scenario?
Ben Elmore said:
If the top lessee is keeping tabs on that well, I seriously doubt they will send you a check unless there is some mix-up in their accounting department. Having said that, was there a deadline in the top lease for them to make the initial downpayment? If there was, and it was before the 6-8-12 spud date, then you have a stronger case that you are entitled to the check, especially given that they were informed by you that the well was potentially in line to be drilled before the end of the primary term of the underlying lease.
Buddy,
I assume under Charles' scenario with no existing wells at the time the top lease was entered into, that the top lease is tied to the expiration of the primary term of the underlying lease, as opposed to cessation of production in the secondary term.
Buddy Cotten said:
Dear Ben,
Given the so limited information, I could surmise that the top lease violated the Rule against Perpetuities and was void on its face. What is your take on that scenario?
Best,
Ben Elmore said:If the top lessee is keeping tabs on that well, I seriously doubt they will send you a check unless there is some mix-up in their accounting department. Having said that, was there a deadline in the top lease for them to make the initial downpayment? If there was, and it was before the 6-8-12 spud date, then you have a stronger case that you are entitled to the check, especially given that they were informed by you that the well was potentially in line to be drilled before the end of the primary term of the underlying lease.