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.

RELATED TERMS
  1. Held By Production Clause

    A Held By Production Clause is a provision in an oil or gas property ...
  2. Acceleration Clause

    An acceleration clause is a contract provision that allows a ...
  3. Full Reporting Clause

    A full reporting clause is an insurance provision requiring the ...
  4. Lease Rate

    Lease rate is the cost to rent a physical space or the payment ...
  5. Extender Clause

    In real estate, a provision of an exclusive listing agreement ...
  6. Valuation Clause

    Valuation clause is a provision in some insurance policies specifying ...
Related Articles
  1. Personal Finance

    Is There a Way to Get Out of Your Car Lease Early?

    For those who no longer want their car for whatever reason, transferring the lease to an interested party can be a particularly appealing choice.
  2. Insurance

    Life Insurance Clauses Determine Your Coverage

    Understanding these key parts of your policy will help you to ensure that your family will be covered.
  3. Managing Wealth

    Why You Should Buy A Car Instead Of Leasing

    While leasing has certain advantages, buying a car tends to save you money in the long run and offers greater flexibility.
  4. Personal Finance

    New Wheels: Lease or Buy?

    Buying or leasing a car both have advantages and drawbacks. Find out which is best for you.
  5. Investing

    Should You Buy Property on Leased Land?

    Find out what to consider before investing in a leased-land property.
  6. Personal Finance

    Make the Right Choice: Buying or Leasing a Car

    Ask yourself these questions before deciding between leasing or buying a car.
  7. Managing Wealth

    Your Lease Is Up: When Should You Buy The Car?

    In general, the fact that you know the car is to your benefit. Before deciding, compare the buyback price to what the car would go for on the open market.
  8. Investing

    4 Difficult Places For Foreigners To Buy Real Estate

    Buying property in the U.S. can be a difficult process. Buying internationally can be even worse, especially in these four countries.
  9. Personal Finance

    3 Questions to Consider When Buying a Car

    When deciding what kind of car to buy, make sure to answer these questions first.
RELATED FAQS
  1. What is an alienation clause?

    Whether used in reference to insurance policies, mortgages or commercial loans, an alienation clause stipulates that should ... Read Answer >>
  2. Single, double and triple net leases

    Learn the ins and outs of net lease agreements, including the key differences between single net, double net and triple net ... Read Answer >>
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  2. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  3. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  4. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  5. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  6. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
Trading Center