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Habendum Clause in Real Estate – To Have and To Hold Clause

What Is a Habendum Clause?

habendum clause The habendum clause in a deed, lease, or mineral rights contract defines the interests, property rights, and specific details of ownership.

A habendum clause is a contract provision.  It deals with property rights, interests, and other aspects of ownership granted to one of the parties to a transaction. It is typically seen in property-related documents and consists of basic legal jargon. Most buyers and sellers are familiar with it through real estate transactions.  However, it is also used in a variety of leases and agreements, particularly in the oil and gas business. The habendum clause is also known as the to have and to hold clause.  This is because it usually begins with the words “to have and to hold.”

The Habendum Clause: To Have and to Hold Clause

The nature of the contract determines the precise content of a habendum provision. A habendum provision in real estate contracts refers to the transfer of ownership of property and any attendant restrictions. The habendum clause is also known as the to have and to hold clause.  This is because it opens with the words “to have and to hold.”

The habendum clause in oil and gas leases defines the primary and subsequent terms of the lease.  Specifically, it spells out how long the lease will be in effect. When employed in the context of oil and gas leases, the habendum clause focuses on the and so long thereafter component of the clause.  Effectively, this extends the lease if certain conditions are met. The habendum clause is also known as the term clause in the oil and gas business.

Habendum Clause in a Lease or Timeshare

Habendum provisions in real estate leases are the legal elements that define the lessee’s rights and interests. A timeshare lease, for example, will specify the percentage of ownership being transferred as well as any additional restrictions. The property or the land itself may be subject to a countdown after which ownership reverts to another party. Some treaty areas enable development but limit ownership transfers to 100 years, for example. This makes any property on those lands appealing during the first half of the lease, but the value diminishes as the term of ownership approaches the expiration date. Similarly, some leases can be linked to the lessee’s life expectancy, with the property reverting to the original owner upon the buyer’s death.

Habendum Clause in Real Estate Transactions

A habendum clause deals with the transfer of ownership of a property.  It lays out any attendant restrictions in outright real estate purchases. The habendum clause usually states that the property can be transmitted without restriction. This means that the new owner has absolute ownership of the land after their conditions are met.  Typically, once payment is made, the new owner has the right to sell or pass the property to an heir, among other things. The sort of property title transferred by a habendum clause is known as a fee simple absolute. A fee simple absolute conveys total ownership of a property, subject to government laws and authorities. Some real estate transfers will include habendum clause restrictions.

Habendum Clause and Oil/Gas Leases

In the oil and gas industry, the habendum clause specifies the principal period during which a business owns mineral rights to property.  Exploration companies can hold these rights, but are not necessarily required to begin exploration. The primary term can range from one to ten years, depending on how well-established a given field is. If the primary period expires without any production, the lease will be terminated. However, if the leased area is drilled and oil or gas is discovered, another term usually begins. In general, once the lease is in production, a subsequent term continues for as long as the leased area is still producing. The habendum clause often permits the lessor to resell the lease if the lessee does not begin production within the primary period.  However, it also protects the lessee if they invest in the land and begin production.

Fee Simple Absolute

Properties are often sold without any restrictions.  When a property is purchased without restrictions, this is called fee simple absolute, or fee simpleIt represents the best title a person can own on a real estate asset.  The purchaser will have the right to sell the property in the future, transfer it, transform it, alienate it, bequeath it or dispose of it so long as he or she complies with government laws and regulations.

The term fee simple absolute defines the nature of the interest conveyed.  A fee simple absolute transfer refers to a type of property title transfer that uses the habendum clause. Subject to government laws and property rights, a fee simple absolute transfer grants complete ownership of a property.

Habendum Clause Examples

Shown below are brief examples of what a habendum clause would look like in a property rights agreement during the transfer of ownership.

  1. LESSEE SHALL HAVE AND HOLD the premises for a term of ten (10) years that shall commence on the Term Commencement Date and shall be ending on the day that is immediately prior to the tenth (10) anniversary of the lease.
  2. To have and to hold the premises herein granted unto the party of the second part, and to the male heirs of the party of the second part forever.
  3. TO HAVE AND TO HOLD the premises for a term of years commencing on the Term Commencement Date and ending on the Termination Date as stated in Exhibit 1 or on such earlier date upon which said term may expire or be terminated pursuant to any of the conditions of limitation or other provisions of this Lease or pursuant to law (which date for the termination of the terms hereof will hereafter be called “Termination Date”). Notwithstanding the foregoing, if the Termination Date as stated in Exhibit 1 shall fall on other than the last day of a calendar month, said Termination Date shall, at the option of Landlord, be deemed to be the last day of the calendar month in which said Termination Date occurs.

Up Next:  What Is a Shadow Price?

ShadowA Shadow Price is an assigned monetary value to an item, commodity, or service where the true value is unknown and can only be estimated.  Shadow pricing is commonly used to establish a value for something that is not ordinarily bought and sold in any marketplace.

Due to the fact that no exact price can be verified through market transactions, the genuine value is unknown.  As a result, it can only be estimated. Often, the value is based on an assumption of the highest price that a business would be willing to pay to obtain the item. A shadow price is determined using assumptions and approximations.  Therefore, its accuracy may not exactly correspond to the item’s true value. Nevertheless, financial analysts typically employ shadow pricing in cost-benefit analyses.  It helps to assign a monetary value to intangible assets – even when only using an estimate.

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