Tuesday, July 24, 2007
Recordation of a Notice of Mineral Lease
As of June
18, 2007, parties are once again allowed to record a notice of a mineral lease
in lieu of the lease itself. This
significant change in the law reestablishes the ability to record a notice of
mineral lease, which was not available after July 1, 2006 when La. R.S.
§ 44:104 became effective.
Between July 1, 2006 and June 18, 2007, this statute allowed parties to
record a notice of a lease affecting immovable property, but was specifically
inapplicable to mineral leases.
During that time, any notice of mineral lease that was recorded was not
effective against third persons.
The new revision, signed by the Governor on June 18, 2007, amends La.
R.S. § 44:104 so that it now applies to mineral leases.
Prior to July 1, 2006, La. R.S.
§ 9:2721.1 allowed parties to record a notice or extract of a lease
affecting immovable property, including a mineral lease, in lieu of the lease
itself. However, Act 169 of 2005,
which affected numerous statutes relating to the recordation of instruments
affecting immovable property, repealed this statute and replaced it with La. R.S. § 44:104. From its effective date on July 1, 2006
through the revision on June 18, 2007, it did not apply to mineral leases, but
since June 18, 2007, it now applies to mineral leases.
When preparing a notice pursuant
to La. R.S. § 44:104, it is important to note that although a mineral
lease is commonly signed only by the lessor, a notice of a mineral lease must
be signed by both the lessor and the lessee. In addition, notice must contain the
following:
(a) A
declaration that the property is leased, and the names and addresses of the
lessor and lessee.
(b) A
description of the leased property.
(c) The
date of the lease, its term, and the provisions of any extensions and renewals
of the term provided for in the lease.
(d) A
reference to the existence of an option, right of first refusal, or other
agreement of the lessor to transfer all or any part of the leased premises.
(e) If
of a sublease, the notice shall also contain reference to the recordation
information of the primary lease or notice of lease that is subleased; however,
the omission of this information does not affect the efficacy of the notice.
The current state of the law
under La. R.S. § 44:104 is different in several respects from the
prior law, La. R.S. § 9:2721.1.
Probably the most significant change concerns the requirement that
additional information regarding the term of the lease be included. The prior statute required that the
notice contain only the term of the lease, as well as any options for renewal
or extension of the term. Most
practitioners interpreted this to mean that a notice must include simply the
primary term and any options to extend the primary term. However, because mineral leases contain
other provisions that affect their term, the revision adds a requirement that
the notice include not only the primary term but also “any additional
period during which the lease may be maintained by the payment of
rentals.” In most common
lease forms, this will refer to the periods after the expiration of the primary
term that a lease can be maintained by payment of shut-in or Pugh-clause
rentals.
Other differences are more
subtle, but should also be carefully complied with when preparing a notice of a
mineral lease. Whereas the previous
statute simply required the names of the lessor and lessee, the current statute
also requires that the notice include their addresses, as well as an explicit
declaration that that property is leased.
With respect to the property affected by the mineral lease, the current
statute requires that the notice contain a “description” thereof,
but the previous statute required only a “brief description.” Under the prior statute, one could argue
that a “brief description” was less than a legally sufficient
property description. However,
because the current statute requires a “description”, it is likely
that this argument would be less persuasive. In any event, in order to avoid any
concerns about the sufficiency of the property description, we recommend that a
notice include a complete legally sufficient description of the leased
property, preferably the same description used in the lease itself. Another difference between the statutes
is that the current one requires that a notice contain a reference to any
option, right of first refusal, or other agreement of the lessor to transfer
all or any part of the leased premises.
This difference is probably not relevant insofar as mineral leases are
concerned. However, it would apply
in some non-mineral leases, and should be included in these situations. Finally, the prior statute applied to
leases, but did not mention subleases, raising a question about whether or not
parties could record a notice of a sublease. The current statute addresses this
issue, and does allow for a notice of a sublease.
The revision
to La. R.S. § 44:104 is a change welcomed by both landowners and
mineral lessees. Parties frequently
prefer to record only a notice of mineral lease, keeping many of the negotiated
terms in a lease out of the public records. When preparing a notice of mineral lease
pursuant to La. R.S. § 44:104, it is best to carefully comply with
each and every requirement set forth in the statute. Because the statute allows for an
exception to the general rule that instruments affecting immovable property
must be recorded in order to affect third persons, a court might require full
compliance with its requirements.
For
more information, please contact James H. Dupuis, Jr. at jhdupuis@liskow.com, or
James N. Mansfield III at jnmansfield@liskow.com or go to www.liskow.com.
