The Assignment Clause

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The Assignment Clause

 The typical  industry lease contains the following assignment clause:

 The rights and estate of any party hereto may be assigned from time to time in whole or in part and as to any mineral or horizon.  All of the covenants, obligations, and considerations of this lease shall extend to and be binding upon the parties hereto, their heirs, successors, assigns, and successive assigns.  No change or division in the ownership of said land, royalties, or other moneys, or any part thereof, howsoever effected, shall increase the obligations or diminish the rights of lessee, including, but not limited to, the location and drilling of wells and the measurement of production.  Notwithstanding any other actual or constructive knowledge or notice thereof of or to lessee, its successors or assigns, no change or division in the ownership of said land or of the royalties, or other moneys, or the right to receive the same, howsoever effected, shall be binding upon the then record owner of this lease until thirty (30) days after there has been furnished to such record owner at his or its principal place of business by lessor or lessor’s heirs, successors, or assigns, notice of such change or division, supported by either originals or duly certified copies of the instruments which have been properly filed for record and which evidence such change or division, and of such court records and proceedings, transcripts, or other documents as shall be necessary in the opinion of such record owner to establish the validity of such change or division.  If any such change in ownership occurs by reason of the death of the owner, lessee may, nevertheless, pay or tender such royalties, or other moneys, or part thereof, to the credit of the decedent in a depository bank provided for above.

 

 As a lessor, you have a strong, legitimate interest in preventing an assignment of your lease to a weakly capitalized operator or to an operator that has a bad track record.  The oil company will push back on your attempt to control assignments of the lease.  First, it will demand that you cannot unreasonably withhold your consent to an assignment.  An example of that type of clause is set out below:

 Personal Performance.  It is specifically understood and agreed that the rights granted to Lessee pursuant to this Agreement are personal and that conduct of operations by Lessee hereunder is the essence hereof; therefore, it is agreed that Lessee may not assign or transfer any rights, interests or obligations under this Agreement, including the right to conduct operations on the Leased Premises, in whole or in part, without the prior written consent of Lessor, which consent shall not be unreasonably withheld.  For purposes of this Section, the transfer of this Agreement by Lessee in connection with a merger or the sale of all or substantially all of its assets or stock shall require advance consent from Lessor just as does an assignment of the Agreement.  Lessee shall give Lessor not less than sixty (60) days advance written notice of any such purported assignment.  Additionally, no assignment or transfer in whole or in part of any rights, interest or obligations under this Agreement by Lessee as consented to by Lessor shall be binding upon Lessor until Lessee has furnished to Lessor a signed copy of the instrument evidencing such assignment.

 

 If you have extreme bargaining clout because of the timing and location factors, you may be able to get absolute control over assignments.  In that case, you should use the clause set out above, but delete the words “which consent shall not be unreasonably withheld” at the end of the first sentence.

 Of course you will want language in the lease addressing what happens if you or your client conveys or assigns all or part of the mineral estate subject to the lease. The standard industry lease addresses that situation.  If you alter the standard lease, you probably would want to include language like the following:

 Transfer by Lessor.  Lessor may freely sell, transfer, assign, lease or delegate its rights and obligations hereunder, subject to Lessee’s rights and obligations hereunder, and thereafter be relieved of any further responsibility or liability for the assigned portion, but no change or division in ownership of the land, rentals, or royalties, however accomplished, shall operate to enlarge the obligations or diminish the rights of Lessee.  No such change or division in the ownership of the land, rentals or royalties shall be binding upon Lessee for any purpose until thirty (30) days after such person acquiring any interest has furnished Lessee, at the address specified herein, with a certified copy of the instrument or instruments constituting his chain of title from the original Lessor.

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