l

Could your lease be voided under the Statute of Frauds?

Any time an interest in real property is conveyed, the contract is only valid if it complies with the Texas Statute of Frauds, which is found in the Texas Business and Commerce Code, and/or the Texas Property Code.

According to Texas court decisions, energy leases convey an interest in real property. This includes:

  • Oil and gas leases
  • Assignments of working interests
  • Overriding royalty interests
  • Mineral and royalty deeds
  • Mutual interest agreements
  • Farmout agreements
  • Other oil and gas agreements and contracts

In order to comply with the Statute of Frauds and the Texas Property Code, these contracts must be in writing, be subscribed and delivered by the conveyor or their agent in writing, and contain or refer to a description of the land in question that identifies it with reasonable certainty.

By “reasonable certainty,” Texas courts have meant essentially that the land interest being conveyed must be described sufficiently so that a person familiar with the land and locality could identify the tract upon the ground.

This seems reasonably straightforward, but failure to comply with the Statute of Frauds and/or the Texas Property Code could result in catastrophic consequences. Your lease could be found partially or totally void.

Common situations where the Statute of Frauds comes into play

One situation where the Statute of Frauds may come into play is when the contract refers to a map or plat to identify the land in question. Unfortunately, not all maps and plats are created equal. Some describe the land in a way that only a professional surveyor would be able to identify the tract.

When using a map or plat, it is crucial to outline the tract according to recognizable survey lines and to include an exact description by section, block, survey and county. Caution should always be used when referring to an outside source for a land description.

Another common situation arises when oil and gas developers hold “signing parties.” These are actual parties, often with barbecue, with the purpose of getting oil and gas leases signed quickly by numerous landowners in a certain area in exchange for bonus checks. Sometimes, the leases prepared for signing parties are not carefully drafted and fail to have a sufficient legal description of the land.

A third situation involves the reservation of ownership of certain depths and horizons. Unless the depths and horizons are sufficiently described, they may not meet the “reasonable certainty” standard.

The Statute of Frauds can even come up in certain aspects of agreements. For example, most oil and gas leases contain a term that says that, at the end of the primary term or upon cessation of continuous development, the lease is terminated except for a specified number of acres. These acres, too, must be defined with reasonable certainty. If they are not, the lease could be found wholly or partially void.

Finally, memoranda of leases must contain sufficient descriptions, as well. Most oil and gas companies don’t file the original lease because they would prefer to prevent the lease terms from being publicly disclosed. Instead, they file a memorandum of the lease — a less detailed version. It still must contain signatures, dates and recording information and should contain a sufficiently certain legal description.

Hire experienced counsel

The Statute of Frauds and the Texas Property Code are complex, and it takes experience to determine whether a particular agreement contains sufficient description of the parcel in question. Don’t leave this to chance. Have an experienced energy law attorney examine any proposed agreement before you sign it.