The setting is typical—the company representative knocked at your door and offered you a wonderful deal to lease part of my property for (oil, gas, wind, cell tower, etc.). Perhaps your neighbors have already entered into an agreement and the company presses you and tells you that you could miss out on the opportunity if you do not act soon. Maybe so, but all contracts are worth a review.
A good review is more than just making sure the contract makes grammatical sense; you have to know what to look for and which questions to ask where wording may be unclear or ambiguous. You should not sign something unless you fully understand the consequences and implications of a contract. As my father says, “boilerplate” just means you haven’t read it. Words have meaning.
While every contract is different and needs to be addressed in its own individual context, here is a brief sampling of questions you may want to ask:
Oil and gas lease: Where are the royalties being figured from? At the well head? From the point of sale? Depending on which payment method is chosen, the Company will be able to deduct different costs on its end before payment is made/figured to you as Lessor. Are post production costs going to be deducted? If so, which ones? Make sure your contract specifies all items to be deducted. The point is to make sure that there are no surprises down the road and that all parties can point to the agreement for a clearly defined answer or process.
Wind Lease: Does the company intend to compensate you according to megawatt produced or is it taking a more conservative tack by compensating you for acreage used? Either may be beneficial, but you should consider the possibility of both. Also, remember that Wind Leases in general tend to tie up the land a lot longer than a mineral leases may; accordingly, future compensation should allow for greater flexibility for inflation adjustment.
Cell Tower Leases: As with Wind Leases, these leases often involve a large structure of some kind. Who is responsible for the increase in property taxes due to the structure? The Company should be. Who is responsible for removing all defunct equipment after the lease expires? The Company should be. Look out for these items, as they may present large unanticipated expenses even after the Company has left or assigned the lease to another player.
Additional questions for all leases—when does it terminate? Can it continue perpetually at the company’s option? This becomes important when a new company decides to ‘skip by’ your property without even offering a lease because your property is already encumbered with leases on the public record. Even if those leases were never active or never actively paying you interest, in Ohio, leases remain on record even if they have expired by term unless you take the necessary action to forfeit officially.
As with all contracts, be sure you carefully review all items in your lease as you can be sure the argument will arise from the ‘boilerplate’ clause that you were certain would not apply.
This article was written by Jessica B. Moon, Attorney licensed in Ohio and Florida. David Bacon and Jeffrey Roth, and Jessica Moon are Member Attorneys in Roth & Bacon Attorneys, LLC. Their Offices are located in Upper Sandusky, Marion, and Port Clinton, Ohio, and Fort Myers, Florida. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. Copyright @ Jessica B. Moon 2014.