12.002 After Payout Override

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Requirement 12.002

After Payout Interest

 

         Rule Against Perpetuities – After Payout Interest:  By statutory warranty deed dated September 19, 2011, and recorded in Book 2011, page 109, Pedro Zambini conveyed ten percent of an undivided 15/75.97 mineral interest in Tracts 3, 4, and 5 “after complete payout,” to Rosa Smith.  With respect to payout, the deed provided:

Complete Payout shall exist when production realized by Grantor from the sale of oil, gas and other minerals conveyed hereby, exclusive of production and severance taxes, equals $7,000.00.  Grantee shall be entitled to no interest in the production, or to the proceeds from the sale of oil, gas, and other minerals prior to Complete Payout.

 

Rosa Smith’s interest is susceptible to the harsh results of the Rule Against Perpetuities, since her interest is not certain to vest within the period permissible under the rule.  The Alabama Supreme Court has not considered the effect of the Rule Against Perpetuities upon such an interest.  There is a substantial risk, however, that the court would hold her interest invalid under the Rule and that her grantors retained her interest.  Lisa Pumpelly and her grantors could remove all question as to the validity of her interest by executing a correction deed conveying her the interest outright and then having Pumpelly assign back to the grantors all production until the payout event occurs.

 Requirement:  After the proceeds from the sale of production from the interest conveyed to Rosa Smith, exclusive of production and severance taxes, exceeds $7,000.00, you should not pay royalties or proceeds from production or distribute production attributable to that interest unless all the parties to the above described deed to Rosa Smith, and their assigns, join in a correction deed conveying fee simple title in the ten percent interest to Rosa Smith.

Copyright 2011 by Edward G, Hawkins. All rights reserved.