What Is a Habendum Clause?
A habendum clause is a section of a contract that deals with property rights, interests, and other aspects of ownership given to one of the parties to a deal. Consisting of basic legal language, it is usually included in property-related documents.
Most buyers and sellers have experience with it through real estate transfers, but it is also used in all manner of leases and deeds, especially in the oil and gas industry.
key takeaways
- A habendum clause is section of a contract that deals with rights, interests, and other aspects of ownership given to one of the parties in land deals.
- In real estate leases, the habendum clause deals with the lessee's rights and interests.
- In real estate purchase contracts, the habendum clauses deals with the transfer of ownership, usually (but not always) without restriction.
- In oil and gas contracts, the habendum clause sets out the primary term during which a company holds the mineral rights to the land but is not obligated to start exploration.
Understanding a Habendum Clause
The content of a habendum clause varies depending on the exact nature of the contract. In real estate contracts, the habendum clause refers to the transfer of ownership of a property and any accompanying restrictions. Because the clause begins with the phrase, "To have and to hold," the habendum clause is sometimes called the "to have and to hold clause."
In oil and gas leases, the habendum clause defines the primary term and secondary term of the lease, dictating how long the lease is in force. When used in the context of oil and gas leases, the focus of the habendum clause is on the "and so long thereafter" portion that extends the lease if conditions are met. In the oil and gas industry, the habendum clause is also referred to as the "term clause."
Habendum Clauses in Real Estate
In real estate leases, habendum clauses are a section of the contract that describes the rights and interests given to the lessee.
For outright real estate purchases, a habendum clause deals with the transfer of ownership of a property and any accompanying restrictions. Usually, the habendum clause states the property is transferred without restrictions. This means the new owner has absolute ownership of the property upon satisfying their conditions (usually payment in full) and has the right to sell or bequeath the property to an heir and so on.
The type of property title transferred using a habendum clause is called "fee simple absolute." A fee simple absolute grants complete ownership of a property, subject to government laws and powers.
Because it typically begins with the phrase, "To have and to hold," the habendum clause is sometimes called the "to have and to hold clause."
Some real estate transfers will include restrictions within the habendum clause. For example, a timeshare lease will outline the percentage of ownership being transferred and any other related restrictions.
Sometimes the property or the land itself is subject to a countdown, upon which ownership reverts to another entity. Some treaty lands allow development but cap the transfer of ownership at 100 years, for example. This makes any property on those lands attractive in the first half of the lease, but the value is discounted as the time of ownership counts down to the deadline. Similarly, some leases can be tied to the lifespan of the lessee, with the property reverting to the original owner upon the buyer's death.
Habendum Clauses and Oil/Gas Leases
In the oil and gas sector, the habendum clause sets out the primary term during which a company holds mineral rights to the land but is not obligated to start exploration. The primary term can vary from one to ten years depending on how proven a given field is. If the primary term passes without any production, then the lease expires. However, if the leased area is drilled and oil or gas is flowing—that is, the lease is in production—the secondary term begins and continues as long as the leased area is still producing.
In this context, the habendum clause allows the lessor to sell the lease again if the lessee doesn't start production within the primary term, but also protects the lessee if they invest in the land and are producing.
I'm an expert in property law and contractual clauses, and I'll demonstrate my knowledge by providing detailed insights into the habendum clause discussed in the article.
The habendum clause is a crucial section of contracts dealing with property rights, interests, and ownership aspects. It is commonly found in real estate transactions, leases, deeds, and particularly prevalent in the oil and gas industry. Here's an in-depth breakdown of the concepts used in the article:
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Habendum Clause Overview:
- Definition: A section of a contract dealing with property rights, interests, and ownership.
- Common Usage: Real estate transfers, leases, deeds, and extensively in the oil and gas industry.
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Real Estate Leases:
- Function: Defines the lessee's rights and interests in real estate leases.
- Transfer of Ownership: In real estate purchase contracts, it deals with the transfer of ownership, often without restrictions.
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Real Estate Purchase Contracts:
- Purpose: Facilitates the transfer of ownership with or without restrictions.
- "To Have and To Hold": Commonly referred to as the "to have and to hold clause," indicating absolute ownership.
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Fee Simple Absolute:
- Definition: Type of property title transferred through the habendum clause, granting complete ownership, subject to government laws and powers.
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Restrictions in Real Estate Transfers:
- Examples: Timeshare leases may specify ownership percentage and other restrictions.
- Countdown Mechanism: Some properties have countdowns, reverting ownership after a specified period or event.
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Oil and Gas Leases:
- Primary Term: Sets the duration during which a company holds mineral rights without exploration obligations.
- "Term Clause": In the oil and gas industry, it is also known as the "term clause."
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Primary and Secondary Terms:
- Oil/Gas Lease Terms: Primary term (1-10 years) without production obligations; secondary term if the leased area is in production.
- Lease Expiry: If no production during the primary term, the lease expires.
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Protection and Rights in Oil/Gas Leases:
- Lessee's Rights: Allows selling the lease again if the lessee doesn't start production within the primary term.
- Lessee's Protection: Protects the lessee if they invest and are producing, enabling lease continuation.
In summary, the habendum clause is a versatile contractual element, adapting to various contexts in real estate and the oil and gas industry. It plays a crucial role in defining ownership, rights, and obligations, showcasing its significance in legal frameworks governing these transactions.
