What Is a Habendum Clause?
Let me explain what a habendum clause is—it's a key section in a contract that addresses property rights, interests, and other ownership elements granted to one party in a deal. You'll find it consists of straightforward legal language, and it's standard in property-related documents.
If you're a buyer or seller, you've likely encountered it in real estate transfers, but I want you to know it's also common in various leases and deeds, particularly in the oil and gas sector.
Key Takeaways
- A habendum clause is a contract section that covers rights, interests, and ownership aspects in land deals.
- In real estate leases, it outlines the lessee's rights and interests.
- In real estate purchase contracts, it handles ownership transfer, often without restrictions.
- In oil and gas contracts, it establishes the primary term for holding mineral rights without requiring exploration to start.
Understanding a Habendum Clause
You should understand that the content of a habendum clause changes based on the contract's specifics. In real estate contracts, it refers to the transfer of property ownership and any related restrictions. That's why it's often known as the 'to have and to hold clause,' starting with that exact phrase.
When it comes to oil and gas leases, the habendum clause defines the primary and secondary terms of the lease, setting how long it remains active. In this industry, the emphasis is on the 'and so long thereafter' part that extends the lease if conditions are met, and here it's also called the 'term clause.'
Habendum Clauses in Real Estate
In real estate leases, the habendum clause describes the rights and interests provided to the lessee—it's that simple.
For outright purchases, it deals with transferring ownership and any restrictions that come with it. Typically, it states the property transfers without restrictions, giving the new owner absolute control once conditions like full payment are met, including the right to sell or pass it to heirs.
This transfers what's known as 'fee simple absolute' title, which means complete ownership subject only to government laws and powers.
Keep in mind that some transfers include restrictions in the habendum clause, like in timeshares where it outlines ownership percentage and other limits. Sometimes, the property is on a timer, reverting to another entity after a set period—think treaty lands with 100-year caps that affect value over time. Leases might even tie to the lessee's lifespan, reverting upon death.
Habendum Clauses and Oil/Gas Leases
In the oil and gas sector, the habendum clause sets the primary term where a company holds mineral rights to the land without needing to begin exploration. This term can range from one to ten years, depending on how established the field is.
If no production happens by the end of the primary term, the lease expires. But if drilling occurs and oil or gas flows—meaning the lease is in production—the secondary term kicks in and lasts as long as production continues.
This setup lets the lessor resell the lease if the lessee doesn't produce within the primary term, while protecting the lessee's investment if they do start producing.
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