Delay Rentals- The "or" Lease

Question 1

Condition

Answer 1

Agreed upon obligation of the lease that results in automatic termination if not fulfilled

Question 2

Covenant

Answer 2

A promise to do something in a lease. If not fulfilled, the lease does not automatically terminate. The remedy for this is seeking action for a breach of contract, which can result in forfeiture of the estate.

Question 3

Surrender Clause

Answer 3

Allows the lessee to cancel the lease at any point in time, generally along with some payment to the lessor. Allows the lessee to escape liability for failure to drill.

Question 4

Warner v. Haught

Answer 4

West Virginia

Haught owned multiple leases that contained surrender clauses. After being late on delay rental payment for almost a month, Haught was notified of the failure to pay.

The court ruled the lease was an “or” lease, due to the surrender clause. The statutes in West Virginia require the lessor to demand payment and give notice of cancellation, as well as provide a copy to the county clerks office. The failed to provide a copy so the lease was not terminated.

Question 5

Dry Hole Clause

Answer 5

Allows a lessee a given period of time to commence a second well or pay delay rental if the first well is drilled to be a dry hole.