Subrogation

A paragraph in the last lease offer I received was to grant the Lessee the right to protect their interest in my property by paying the mortgage or taxes on my behalf, and thus to be subrogated to the rights of the lean holder, and the right to recover their costs through witholding royalties.  I looked up subrogation in a legal dictionary, it means they would have the same rights as the leanholder.  Same as if they had purchased the note from the lender.  But that brings up a few questions...

 

1) Can they just pay the mortgage or taxes even if I'm not in default?

 

2) If they payed the mortgage, would they be able to forclose?

 

3) If they payed the taxes would they be able to seize the property as if they were the county?

 

4) If I included an addendum clause stating "Lessee hereby waives their right to subrogation.", would that protect me from their misbehavior?

 

Thanks in advance.

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Permalink Reply by Frank Walker on November 20, 2010 at 3:10pm
You need the counsel of a lawyer on this for sure; no question of it. I'm not a lawyer but I'l give you a free opinion anyway . . . it's worth every cent of what it's costing you, but no more:

I think your concern is unnecessary. The gas company is only trying to protect its interest on chance you default. They don' want to steal your home or land. But if you don't pay the mortgage they want to be able to pay in your stead so they don't lose their well(s) or . . if one of their laterals passes through your property . . the right to use that lateral.

It can get really messy for the gas company when (if) Lessor fails to pay mortgage. They need at that point ONLY to be able to step in and protect their investment. If they sought to take unfair advantage of you, you could probably clean their clock in court. But I doubt such a thing would ever happen. Much more likely they would simply pay your mortgage and take the cost, to the extent possible, out of your royalty payment stream.

Just thinking out loud, you might be able in your lease to limit their recourse to royalty money only. It's probably not necessary, but if you're a "belt and suspenders" kind of person it might help you sleep better. You also might be able to find wording which specifically eliminates their right to pay anything so long as you are making your mortgage payments timely.
Permalink Reply by Bryan D. Huwar on November 20, 2010 at 8:02pm
1) If the lease didn't limit the right to a default situation, then a gas company could definitely do it. But why in the world would they ever do it unless they needed to do it. In fact, there might be an argument that a landowner in such a situation does not have to pay the company back.

2) Off-hand the only situation I can think of at the moment where they could sell the property out from under you wouldn't technically be a foreclosure situation. I'm thinking the company would have to first get a judgment against you for failure to pay them backand then execute (i.e., have the Sheriff sell the property) on the judgment.

3) No. They cannot do a tax sale of the property like counties do, but they could sell it in the manner I outlined above.

4) Well, you'd certainly have to have at least a little more than that. Plus, in reality I wouldn't be surprised if that was a deal breaker for a company because it would make it a lot more difficult for it to protect its investment. Like Frank said, they'd probably take the money out of your royalty stream, but it would be much better if you limited their recourse against you to recovery from the royalty stream. Even that might be a tough sell.

In my opinion this definitely wouldn't be in the top 10 concerns in lease negotiations. I know I could live with it even if I was leasing my own property.

Here's a semi-related tip since I'm guessing you have a mortgage. You should specifiy that a company can't reject title based upon an open mortgage against the property and the mortgage not being subordinated to the lease (meaning the bank agrees to take a back seat to the lease and in case of foreclosure and sale of the property the lease will still remain in effect instead of being divested).


DISCLAIMER (i.e., CYA): Attorney-Client Privilege/Confidentiality is not established and does not apply to either questions or responses. Hence, do not disclose any confidential information (which would be really stupid anyway since thousands of people are reading this stuff). Responses are not to be taken as legal advice. Only one piece of legal advice is being given: HIRE YOUR OWN ATTORNEY TO HANDLE YOUR OWN SET OF FACTS AND DISTINCTIVE LEASE TERMS AND ISSUES! A brief recital of facts and issues in a discussion forum can NEVER convey all of the facts in each idiosyncratic case. Likewise, a brief response to those incomplete set of facts and issues in a discussion forum can NEVER convey a functional analysis of your unique situation, and, as such, cannot be relied upon by you as legal advice for your unique situation. Believe me, fact situations are about as similar as fingerprints. Moreover, all of my responses are talking about Pennsylvania law because that is where I am licensed. That means if you are from outside of Pennsylvania you can go ahead and throw everything I said right out the window (darn, I was trying to make it through this without resorting to a cliché . . . or a French word). Thus, while my responses might be free, they are not legal advice. Do not be so stupid as to try to save $1,000.00 whenever you have the opportunity to make $100,000.00. So take it from Warren Buffett – “Price is what you pay. Value is what you get.” If you do not pay the price you will really pay the price. I hope I avoided ticking you off, but hey, wasn’t that a great disclaimer!
Permalink Reply by Robin Jackson on November 27, 2010 at 10:13am
We have the same clause..I wouldn't worry about it.
Permalink Reply by mlb on September 1, 2011 at 6:25am

Title question for you Bryan if you have time and don't mind ( realize that you can't fully know my facts ).  So, if I signed a lease with an O and G company but am currently nearing the end of a quiet title action that I began ( people coming out of the wood work for money ) and am now wondering during the title search process if this will be a problem or not.  My line of thinking, (not being any atty) is that the O and G  company would pay the current title holder who possesses the land ( paying taxes etc ) and then if later on someone else turns out to own a portion of the land, then that is between the those two parties not the gas company.  Does that makes sense or is it correct.

 

I have a friend who actually has land that a real estate developement company he was involved with now has a lien on his 100 acres yet the O and G company signed and paid him anyways.

 

Any thoughts?  I can only imagine this is happening with some frequency now with talk of money in the air.  It seems that anyone could come along ( 4th cousin ) and say hey that was mine, where would it ever end except a quiet title and that would tie the gas companies hands on certain tracts of land.  Thanks.

 

Permalink Reply by Finnbear on September 2, 2011 at 2:18pm
I have seen this clause in a few leases. The lessor would not have to pay the lessee back because the lessee would withhold royalty payments in the amount they paid out on the mortgage to protect their lease investment. Basically the lessee forces the lessor to meet their financial obligations by redirecting the royalty payments.

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