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Home > Journals > Michigan Law Review > MLR > Volume 19 > Issue 2 (1920)

 

Abstract

This clause follows the grant, and is one of the most distinctive features of the modern oil and gas lease. Occasionally the duration of the lease is fixed by the granting clause; some times by a miscellaneous provision appearing therein. But generally speaking, the habenduin defines the term of the present-day oil and gas lease. At any rate a discussion of the legal effect of the habendum clause which now characterizes these instruments will involve the treatment of every important question which arises under this heading. At the outset we should observe that the clause is the direct result of a natural evolution in the methods and customs of the business. Also that the provision owes its present form to two compelling considerations. The first deals with the situation of the lessor and the second with the situation of the lessee. Manifestly a landowner is reluctant to encumber his land for an indefinite time with an unproductive lease. This statement does not imply that every lease, or even a substantial proportion of the leases taken, must be developed. The industry could not survive if such were the requirement. What is meant is that the lessee shall have a reasonable period for exploration, and if within this interval no wells are drilled or if the wells drilled prove to be nonproductive, then the lease expires, leaving the lessor free to make such disposition of his land as he will. Therefore in formulating a provision fixing the duration of an oil and gas lease the obvious self-interest of the lessor must be taken into account. On the other hand, the sole risk of the venture rests with the lessee. He must enter upon a precarious and uncertain undertaking attended by great financial hazard. In such circumstances the duration of the lease must be sufficiently inviting to induce him to devote his energies and capital to a business wholly speculative in character. Clearly the answer to the predicament of the lessee is this: If he find production within the exploratory period then he should have the enjoyment of his lease during its profitable life. Founded upon these basic considerations the .industry finally has evolved the following habendumn clause: "'To have and to hold said premises for the purposes aforesaid to and unto the lessee, its successors and assigns, for the term of five years from date hereof and as nuch longer therealt,,r as oil or gas shall be produced therefrom in paying quantities.-*" It is to be noticed that this clause performs a double function. First of all it provides that the lease shall expire at the end of a limited term of reasonable duration unless the lessee at that time is producing oil or gas in paying quantities. Thus far the provision, is for the exclusive benefit of the lessor. Supplementing this, however, is a provision whereby the lessee is vested with the right to hold the lease as long as oil or gas is found in paying quantities upon the condition that the lease is made productive during the fixed term. Therefore the clause serves the peculiar interest of the lessee also. In order to grasp the exact significance of the clause in the economy of our subject we must review the conditions which brought it to its present form.

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