Lease Duration | Oil and Gas Leases | Michigan Farm Bureau
We apologize for the inconvenience while our website is down. Here is a link to your member benefit and discount information.
Log In or Join for a Personalized Experience
Welcome back
Member Since

Lease Duration

Leases are divided into two separate time periods. The first period, or primary term, is a set number of years negotiated by the parties during which the lessee must commence drilling operations or pay an annual fee to the lessor. The lease will generally state that if drilling operations are not commenced within one year after the lease is entered, the lease will terminate unless an agreed sum is paid the lessor. This sum is called a delay rental. Delay rentals must be paid on each subsequent anniversary date of the lease's primary term if drilling operations have not yet begun by that date.

Failure to receive the delay rental payment by the stipulated time automatically terminates the lease whenever the word "unless" is used in the lease to indicate the necessity of tendering the payment. Some leases contain the word "or" rather than "unless." In the latter case the lease will not terminate.

If production is not established by the end of the primary term, the lease will end. If production has been established, the lease will continue into its secondary term and last so long as substances covered by the lease continue to be produced. Generally the full clause will read, "This lease shall remain in force and effect for a term of ____ years (or months) and as long thereafter as substances covered by the lease are produced."

For the best protection, the lessor should consider one or more of the following recommendations:

  1. Strive to keep the primary term as short as possible. This should force earlier explorations.
  2. If the primary term cannot be shortened, strive to negotiate a higher annual delay rental payment.
  3. Make sure the word "unless" is employed in conjunction with delay rentals. Keep a watchful eye on the date by which the delay rental payments must be received. Acceptance of a late payment may be construed as a ratification and the lease will not terminate.
  4. Stipulate that the lessee must identify the governing lease and the provisions necessitating any payments made to the lessor. This is an invaluable aid for landowners trying to keep track of several different leases on their land.