10 Nov 2018

DEFINITION of ‘Habendum Clause’

Habendum clause refers to a section in leases that describes the rights and interests being given to the lessee. In terms of real estate contracts, the habendum clause refers to the transfers ownership of a property and any accompanying restrictions. Because the clause begins with the phrase, “To have and to hold,” the habendum clause is sometimes called the “to have and to hold clause.” In oil and gas leases, the habendum clause defines the primary term and secondary term of the lease, dictating how long the lease is in force for. When used in the context of oil and gas leases, the focus of the habendum clause is the “and so long thereafter” portion that extends the lease if conditions are met. In the oil and gas industry, the habendum clause is also referred to as the term clause.

BREAKING DOWN ‘Habendum Clause’

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

Habendum Clauses in Real Estate Transfers

For outright real estate purchases, the habendum clause states that the property is transferred without restrictions. This means the new owner has absolute ownership of the property upon satisfying his or her conditions (usual payment in full) and has the right to sell it, bequeath it to an heir and so on. The type of property title transferred using a habendum clause is called “fee simple absolute.” A fee simple absolute grants complete ownership of a property, subject to government laws and powers.

Some types of real estate transfer will include restrictions within the habendum clause. A timeshare lease, for example, will outline the percentage of ownership being transferred and any other related restrictions. Sometimes the property or the land itself is subject to a countdown, upon which ownership reverts to another entity. Some treaty lands allow development but cap the transfer of ownership at 100 years, for example. This makes any property on those lands attractive in the first half of the lease and a discount as the time of ownership counts down to the deadline. Similarly, some leases can be tied to the lifespan of the lessee, having the property revert to the original owner upon the buyer’s death.

Habendum Clauses and Oil and Gas Leases

In the oil and gas sector, the habendum clause sets out the primary term during which a company holds the mineral rights to the land but is not obligated to start exploration. The primary term can vary anywhere from a year to ten depending on how proven a given field is. If the primary term passes without any production, then the lease expires. However, if the leased area is drilled and oil or gas is flowing – that is, the lease is in production – the secondary term begins and continues as long as the leased area is still producing oil. So, in this context, the habendum clause allows the lessor to sell the lease again if the lessee doesn’t start production within the primary term, but it also protects the lessee if they invest in the land and are producing.

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