Top Leases

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Top Leases

 

 A top lease can run afoul of the common-law Rule and the Alabama Uniform Rule.  A good top lease clause to protect against the common-law Rule or the Alabama Uniform Rule is:

 

As of    <Date of Top Lease>     , this Lease covers and binds Lessor’s present and future interests in the lands described herein but it is expressly provided that: (i) the Lessee’s right to enter, to possess, and to conduct oil and gas exploration and production operations on the lands under this Lease shall be deferred until that certain oil, gas, and mineral lease (“  <existing lease>   ”) dated     <date of existing lease>   , from Lessor to    <Name of Existing Lessor>   , as Lessee, as that lease appears in     <recording reference (Book & page)>    in the records of the Office of the Judge of Probate of    <County>    County, Alabama, has expired by its own terms, and (ii) if the   <existing lease>    does not expire on or before 20 years and 300 days after    <date of top lease>   , Lessee shall have no right to enter, to possess, and to conduct oil and gas exploration and production operations on the lands under this Lease.  Lessor covenants and declares that the execution and delivery of this Lease should in no way be construed as a repudiation of the existing rights, if any, under the   <existing lease>    or as an adoption, recognition, or ratification of the   <existing lease>   , or as a waiver of any breach of the   <existing lease>   .

 

The language set out above:

(1) Specifically states that the top lease is a present grant of present and future interests.  (Present grant of residuary interest retained by Lessor after granting the first lease);
(2)Specifically states that the top lease is not (i) a repudiation of existing lease,  (ii) an adoption, recognition, or ratification of the existing lease, or  (iii) a waiver of any breach of the existing lease;
(3) Defers entry, possession, and use until the expiration of the existing lease; and
(4)Has a perpetuity savings clause.

 

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