- He knows that Jimmy Dolittle Oil Company treated his Daddy’s farm badly and didn’t want to pay damages years ago.
- Mr. Johnny did his homework, and JDOC has a terrible Dunn & Bradstreet rating. He doesn’t feel that they can live up to their obligations under the lease.
- Perhaps Mr. Johnny feels the original Lessee (you) owe him a release of depths, or that you bump up his royalty to match his neighbors that you leased after him.
Unfortunately, what happens in many cases is that the lease gets assigned without Mr. Johnny’s consent. Why does this happen?
- As mentioned above, the Lessee feels that they can prove the landowner is “unreasonably” withholding consent.
- A proper due diligence wasn’t performed and perhaps no one realized that consent was necessary until after the transaction had taken place.
So how do you avoid including this clause in your lease when landowners request it? The first line of defense is offering a clause which will provide notice of assignment within ‘xx’ number of days of the assignment. This keeps the landowner informed as to who holds an interest in the lease.
In extreme cases I’ve seen clauses included in leases to the effect of “Lessee, and his assigns, hereby agree that this lease will never be assigned to XYZ Oil Company or any subsidiary thereof.” I’d say this is a last resort type maneuver, as it could really cause problems down the road depending on the size of ‘XYZ’. There is also some implicit vagary, can the lease be assigned to the resulting company who merged with or acquired ‘XYZ’? It’s a slippery slope.
Many sophisticated lessors will not allow you to get away with not including a ‘consent to assign’ clause, but when possible it is advised that you do everything possible to avoid its inclusion in your lease.