Need Legal Help for Your Business? Find It Here
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Need Legal Help for Your Business? Find It Here

When my husband I decided to start a business, we didn't think about the legal aspects of doing so. We didn't realize that purchasing business insurance, getting building permits and making investments all required some type of legal advice. But after speaking to a close friend, who also happens to own a small business, we contacted a business attorney. Now, we have the legal smarts to make the best decisions for our business, as well as the legal representation in case something happens to our company. I hope that you find my blog helpful and informative for your own business. It's a great resource for finding the legal advice, resources and guidance you need to get your company up and running.

Need Legal Help for Your Business? Find It Here

What Should You Know About Inheriting Oil And Gas Leases?

Ronnie Mills

If you've recently found yourself the owner (or partial owner) of your relative's home after his or her death, you may be wondering about your next steps. And if your relative's home happens to be subject to an oil or gas lease, this matter can become more complex. Although these leases can provide a comfortable cash flow to the original lessor (and any beneficiaries), selling this house or property can be much more complicated than selling a house that isn't subject to any leases or liens. Read on to learn more about how oil and gas leases work, as well as what your options may be if you inherit a property with an existing oil or gas lease.

What is an oil or gas lease?

Over the last few years, the U.S. has significantly increased its production of oil and natural gas, helping stabilize crude oil supplies and help families enjoy lower-cost heating and cooking options. However, these oil companies often don't own the land from which these oil and gas deposits are sourced. Rather, oil companies will scout potential development areas and then offer to enter into leases with the local property owners.

These mineral leases grant oil companies one or two types of rights. Surface rights include the right to access the oil or natural gas by entering onto the property and mining or drilling -- however, the property owner still retains the right to be compensated for any substances removed. Mineral rights give the oil company the right to any funds generated from the sale of the minerals beneath the surface of the earth, but not necessarily access to these minerals. Some leases grant both surface and mineral rights, while others will cover only one type of right.

In exchange for one or both of these rights, the oil company will pay the land owner a monthly or yearly fee (even if no drilling takes place). This fee will be paid through the end of the lease, and the oil company may elect to renew the lease or to allow it to expire.  

What happens if you inherit a property subject to one of these leases?

Ordinarily, if you inherit a house or piece of land through the probate process, you'll be able to market and sell this home fairly quickly. However, selling a property subject to an oil or gas lease can be a complex process, even for the experienced seller. There are a few things you can do to make this process easier for you.

First, you'll want to consult with an experienced oil and gas attorney. An attorney will be able to carefully review the lease to determine which rights have been granted, and even whether the lease is still in effect -- as some are designed to terminate upon the property owner's death. If the lease is still in effect, your attorney can contact the oil company to inform it of your relative's death and give it the option to renew the lease with you. 

Next, you'll want to evaluate your potential market. Sometimes, an oil or gas lease may be a selling point, particularly if this lease is written in a way as to favor the landowner or covers a piece of property far removed from the home. However, in other cases, potential buyers may be reluctant to sign on for the possibility of losing the use of part of their property -- even for a monthly payment. 

Finally, you'll want to determine whether there's anything in the lease you can re-negotiate to make your property more attractive to potential buyers. For example, you may be able to secure a "no-drilling" promise for a certain number of years. If this is a starter home, it's likely that the family buying it will move on after a while, and they may be happy to take the monthly lease income and then move elsewhere once the no-drilling provision has expired.