Habendum Clause (Leases) Definition
The Habendum clause, also known as a “to have and to hold” clause, is a part of the lease that defines the rights and interests that the lessee or grantee enjoys. Commonly used during real estate transfers, the habendum clause incorporates all terms and restrictions pertaining to the transfer. The clause is also in use in oil and gas leases as a ‘term clause’. The term clause predicates the period of enforcement of the lease and segregates the lease period into a primary and a secondary term, with a provision for lease extension given that the terms continue to be enforced.
A Little More on What is a Habendum Clause
The habendum clause is an essential legal definition that is incorporated into property transfer papers. Although a fairly generic component of most deeds, this clause is most commonly used during real estate transfers.
Habendum Clauses in Real Estate Transfers
During real estate transfers, the habendum clause present in the property title predicates a total transfer of property rights without restraints. The title, also called a fee simple absolute, bestows upon the buyer the rights to sell or pass on the property to a beneficiary, given that the buyer has, as a prerequisite, satisfied all the terms of the purchase. In any case, all deeds or leases must conform to government legislation.
Certain real estate transfers do place restrictions within the habendum clause. A good example is a timeshare lease that enforces restrictions such as the percentage of transfer of real estate ownership. Other leases allow for long-term yet transitory types of ownership transfers where properties are leased out for extended periods such as 100 years or until the death of the lessee.
Habendum Clauses and Oil and Gas Leases
A habendum clause incorporated into an oil and gas lease agreement bestows upon the exploration company the right to hold the land without commencing exploration operations. Since the lease period is segregated into primary and secondary terms, the clause mandates that a total passage of the primary term (which can be anywhere from a year to a decade) without the commencement of exploration operations will deem the lease as ‘expired’. Conversely, if exploration commences and production is still in progress after the passage of the primary term, the secondary term is initiated automatically.
References for Habendum Clause
Academic Research on Habendum Clause
The Habendum Clause as a Special Limitation on Oil and Gas Leases in Texas, Irwin Jr, I. (1957). Sw. LJ, 11, 340.
Defining Production in Paying Quantities: A Survey of Habendum Clause Cases throughout the United States, McDonald, J. E., & Wallen, Z. M. (2014). NDL Rev., 90, 383. This paper investigates the general concept of leases in drilling technology. This paper provides a survey of the relevant case law on habendum clause interpretation throughout the United States in order to further clarify jurisdictional variations and identify the similarities that exist regionally and nationally. It provides a look at how much production courts require to uphold an HBP lease and explains the tests the courts use to determine whether the required level of production occurred.
Oil and Gas Leases-The Habendum Clause Determines the Duration of the Lease Unless Properly Modified by Other Provisions of the Lease, Hanna, R. L. (1973). Tex. Tech L. Rev., 5, 900.
Rights granted in the habendum clause, Burgess, P. W. (1998). In Working with the oil and gas lease: Proceedings of an Insight Conference. This paper discusses the concept of the habendum clause, as well as its purpose in a petroleum or natural gas lease. This paper describes the rights granted in the habendum clause. In this paper, typical older forms of freehold leases are compared with the model lease form and with the 1991 form of the Canadian Association of Petroleum Landmen (CAPL) Petroleum and Natural Gas lease.
A Reexamination and Reformulation of the Habendum Clause Paying Quantities Standard Under Oil and Gas Leases, Ritchie, A. (2017). ONE J, 3, 977. This article examines the habendum clause and the evolution of the paying quantities standard which will determine whether a lease continues in effect or terminates automatically. This article also seeks to show that courts have placed undue focus on the mathematical first prong of the paying quantities test. Due to the shortcomings of the mathematical prong, this article proposes that courts reformulate the paying quantities standard by removing the express mathematical prong of the test and by taking the best aspects of the test from both earlier and more recent decisions.
Comparing Apples and Oranges-The New Mexico Supreme Court’s Modification of the Habendum Clause in an Oil and Gas Lease by the Implied Covenant of …, Dickerson, R. (1982). NML Rev., 12, 529.
Habendum Clause as Affected by Shut-in, Commence Drilling, Continued Drilling and Other Clauses, Sperling, J. E. (1958). Proc. Ann. Inst. on Oil & Gas L. & Tax’n, 9, 1.
Oil and Gas Lease-The Habendum Clause-Sufficiency of Shut in Wells for Extension Beyond the Primary Term, Murphy, D. D. (1957). In Dicta (Vol. 34, p. 253).