Habendum Clause

80-20 Rule

DEFINITION of the Habendum clause

The Habendum clause refers to a section of leases which describes the rights and interests granted to the tenant. In terms of real estate contracts, the habendum clause refers to the transfer of ownership of property and any restrictions that accompany it. Because the clause begins with the phrase “have and hold”, the habendum clause is sometimes called the “have and hold” clause. In oil and gas leases, the habendum clause defines the main duration and the secondary duration of the lease, dictating the duration of the lease. When used in the context of oil and gas leases, the habendum clause emphasizes the “and so long after” part which extends the lease if the conditions are met. In the oil and gas industry, the habendum clause is also called the duration clause.

BREAKING OF THE HABENDA CLAUSE

The habendum clause is a basic legal language that is included in documents of transfer of ownership. Most people have experience with real estate transfers, but it is used in all kinds of leases and deeds.

Habendum clauses in real estate transfers

For purchases of real estate, the habendum clause stipulates that ownership is transferred without restrictions. This means that the new owner has absolute ownership of the property after having satisfied its conditions (full payment in general) and has the right to sell it, bequeath it to an heir, etc. The type of property title transferred using a habendum clause is called “absolute fee simple”. An absolute fee simple grants complete ownership of a property, subject to laws and public authorities.

Certain types of real estate transfers will include restrictions in the habendum clause. A timeshare lease, for example, will describe the percentage of ownership transferred and any other related restrictions. Sometimes the property or the land itself is subject to a countdown, the ownership of which goes to another entity. Some treaty lands allow development but limit the transfer of ownership to 100 years, for example. This makes any property on these lands attractive in the first half of the lease and a discount as the ownership time counts down to the deadline. Similarly, certain leases may be linked to the life of the tenant, the property returning to the original owner on the death of the buyer.

Habendum clauses and oil and gas leases

In the oil and gas sector, the habendum clause defines the main period during which a company holds the mining rights on the land but is not obliged to start exploration. The main term can vary from one to ten years depending on the level of evidence in a given area. If the principal term passes without production, the lease expires. However, if the leased area is drilled and oil or gas flows – that is, the lease is in production – the secondary term begins and continues as long as the leased area continues to produce oil. Thus, in this context, the habendum clause allows the lessor to resell the lease if the tenant does not start production within the main deadline, but it also protects the tenant if he invests in the land and product.

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