Replies to This Discussion

Permalink Reply by Bobi Carr ("parker") on July 30, 2009 at 23:20

Mac,

Here is an appropriate clause to add to the lease:

NO WARRANTY BY LESSOR

Notwithstanding any provision of this lease, this lease is granted and made WITHOUT any warranty whatsoever and without any recourse against Lessor whatsoever, either express or implied, not even to the extent of any monies or benefit received under any of the terms thereof, and not even for the return of the bonus, rentals, royalties, or other income paid. Without limitation of the foregoing, Lessor does not warrant title to the Leased Premises or to the oil, gas or other minerals covered by the Lease.

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Permalink Reply by Mac Davis on July 30, 2009 at 23:31

Thanks, is that a "canned" clause that's been used or made up on the spot?

I don't have a particular case to use this, just trying to understand things better.

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Permalink Reply by Bobi Carr ("parker") on July 30, 2009 at 23:34

I searched some Petrohawk leases and found one that contained this clause.

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Permalink Reply by Dion Warr, CPL on July 31, 2009 at 6:31

Mac:

Another way would be to strike the warranty clause on the preprinted form of the lease (all printed forms currently in use will have such a clause.

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Permalink Reply by Mac Davis on July 31, 2009 at 8:27

Good point.

I've frequently referred to myself as a professional paranoid due to the nature of my work, which involves security. People pay me money to be paranoid.

When I read the standard leases, and then hear the stories here, I'm amazed at how much people stick their necks out for a small bonus payment without really understanding the contract.

For instance, people who think they don't have mineral rights, but are told they have mineral rights by the landman, and then sign a lease with a warranty clause. Or grant surface rights, pipeline rights, etc. on their home lot without thinking about what this means.

Dion, if I wasn't sure I owned the mineral rights, I'd definitely want that explicit no warranty clause to be clear in the lease that I'm not making any claims to own mineral rights. Actually, I'd want that clause even if I knew I owned the mineral rights. If someone comes up with a bogus claim, I don't want to be responsible for defending it.

However my honesty often hurts me. I've recently lost a home sale because I wouldn't let the buyer draw her own false conclusions about the deed restrictions. I could have simply kept my mouth shut and probably would have sold the home. Anyone want a nice brick 2/1 home on 5 acres in Keithville? Mineral rights reserved by owner.

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Permalink Reply by Dion Warr, CPL on July 31, 2009 at 9:53

Mac:

If being paranoid entails having an acute awareness of your rights and the implications of granting rights to third parties within the context of your rights as an owner, I don't see the problem.

And when should honesty ever be looked upon as being a fault?

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Permalink Reply by Mac Davis on July 31, 2009 at 19:26

I'm proud of being "paranoid" and honest.

Honesty is expensive sometimes.

Honesty can be dangerous sometimes.

"Honey, do I look fat in this dress?" Luckily, my paranoia overrules my honesty in this occasion.

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Permalink Reply by H1 on August 17, 2009 at 13:48

Mac. I believe you got one thing wrong. You are absolutely correct to strike the warranty clause. I got it struck.
However, if someone comes up with a bogus claim and you DO own the rights, YOU have to defend them even without the warranty clause. ONLY when you DO NOT own the rights and the company pays you the bonus do you NOT have to defend them when striking the warranty clause.
In other words, if you own the rights and the company is paying you for them and someone else claims the rights, that is between you and the bogus guy. The company is doing the right thing and is not involved (although they can withhold payments until it is settled--I believe).
AND it is REALLY dangerous. Some unscrupulous companies DON"T CARE who owns the rights if they get a signature with a warranty clause (only bad companies, not reputable ones). YES it is EXPENSIVE to defend the rights.
I am in no way legal counsel, but I believe I am right about that.

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Permalink Reply by Mac Davis on August 18, 2009 at 7:07

Herman, are you saying that I have to defend myself from someone trying to come after my payments? I'd agree.

What I'm mostly concerned with avoiding is being obligated to pay the costs for the leasing company or production company to defend themselves. Probably with high priced legal talent. Maybe with kickbacks or sweetheart deals between the law firm and the lessee.

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Permalink Reply by Dion Warr, CPL on August 18, 2009 at 7:54

Herman:

Sort of. In a concursus filing in which the O&G company and disputed royalties are involved, the court usually directs the lessee to (unless the O&G takes it upon themselves to bring the filing, at which point they will usually of their own volition) deposit the disputed amount into the registry of the court until such time as a judicial determination of ownership is made. By doing this, the lessee seeks to shield himself from demand, judicial interest and possible statutory penalties, and/or default on the lease terms by fulfilling the obligation to pay the royalties due (in essence, the lessee timely pays and defers to the court to direct the monies in the appropriate manner).

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Permalink Reply by The_Baron on August 18, 2009 at 3:24

BE CAREFUL: from my oil & Gas attourney:


King v. Stohe, 95-656 La. App. 3rd Cir 5/8/96

This case held that a mineral leasee can recover royalties paid to a lessor who is subsequently determined to have no interest in the leased premises, even though the lease was without warranty of title.

based on LA Cival code article 2301, provides that someone who receives somthing not due to him, obligates himself to restore it to him from whom he has unduly received it.

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Permalink Reply by Mac Davis on August 18, 2009 at 7:12

Precisely why you want the "no warranty" clause.

Sounds like you'd actually want something worded more strongly, to the effect that "Payment is for me to release whatever potential claims I have to these rights to you."

It obviously needs to be written very carefully in proper legal terms.

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