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Permalink Reply by HBP on October 1, 2008 at 1:40

KB, you speak in general terms, but you don't say how these give people the "runaround", or exactly why you are not in favor of the letters. I understand that it is not right if companies do not honor them under their terms, but in general it is a simple letter agreement to lease or negotiate a lease. You read it, you decide whether you agree, then you sign or not sign. And its not just an option in favor of the companies - Think about the landowners that signed and locked in a higher bonus than is on the market now - in that case the landowner locked in the deal that benefits them.

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Permalink Reply by HBP on October 1, 2008 at 1:57

was that you're experience as well? Maybe you were dealing with people that do not have authority. As for the "messenger" situation, I know what your saying now. I hate that it goes on because it can be annoying, but at the same time, some letters of intent do not settle the lease terms, so its an agreement to negotiate in good faith. Is the messenger situation bad faith? no. Not anymore than the mineral owner requesting obscure clauses....

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Permalink Reply by HBP on October 1, 2008 at 2:14

True. Obscure is subjective. So is Good Faith (until it goes to court I guess). All I am saying is that absent the last day of the letter/messenger deal, when those with authority have a letter with an owner, it doesn't mean that they are in bad faith for not throwing in the kitchen sink with clauses.

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Permalink Reply by HBP on October 1, 2008 at 2:29

unfortunately, the kitchen sink is subjective too. And it has changed with the recent economics. So we could discuss all day.

But you are correct - Ponies are the real deal breaker. I can't even remember how many deals were destroyed by pony clauses. I call it the Shetland Shutdown.

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Permalink Reply by Grice on October 1, 2008 at 2:41

The terms of the LOI will dictate what obligations (if any) either party will be accountable for.

In general, a LOI is a written agreement (contract), in which all parties are bound by the terms stipulated in the agreement. In any contract, not just in a mineral lease , the property owner must offer three basic principles; (1) proof of ownership, (2) Acknowledgment of terms, and (3) acceptance for compensation. If any of these three principles can not be met, an LOI allows for time so that they can be. Once all three items are fulfilled, the two parties can enter into a more binding contract.

There is no clear answer to your question without actually reading the LOI. But as a general rule, yes, both parties are obligated.

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Permalink Reply by Randy on October 1, 2008 at 3:28

I have to disagree, in most cases a LOI is NOT legally binding.

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Permalink Reply by Grice on October 1, 2008 at 3:55

Only if such exemption is included in the LOI. Unless specifically addressed, courts have been found in favor of the plaintiff. While there have been cases where an LOI was determined to be unenforceable, it was primarily due to the "generalization" of the LOI. That is why it would be difficult to determine the legal aspect of a specific LOI, without actually reading the wording of such instrument. There are simply too many variables.

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