Title Examination Series: Drilling-Delay Rental/Paid-Up Provision

The delay rental provision allows the Lessee to extend, through the payment of rentals, the lease from period to period during the primary term without drilling. If a lease is a “paid-up” lease, then the need for the payment of delay rentals is excused. If there is no delay rental provision or paid up lease provision, then there is an implied covenant to drill and develop, which can result in lease termination during the primary term.

Delay Rental Provision

If drilling operations are not commenced on said land on or before one (1) year from the date hereof, this lease shall terminate as to all parties unless Lessee shall pay or tender to Lessor, or to the credit of Lessor in First State Bank of Blackacre, the sum of Five Hundred Dollars ($500.00) (hereinafter called “rental”), which shall extend for twelve (12) months the time within which drilling operations may be commenced. Thereafter annually, in like manner and upon like payments, the commencement of drilling operations may be further deferred for periods of twelve (12) months during the primary term.

Paid Up Lease Provisions

This is a paid-up lease; no delay rentals are required.

This is a paid up lease and subject to the other provisions herein contained, this lease shall be for a term of Three (3) years from this date (called “primary term”) and as long thereafter as oil, gas or other mineral is produced from said land or land with which said land is pooled thereunder.

A title examiner should determine if a lease (i) is a paid up lease, (ii) requires the payment of delay rentals, or (iii) is subject to the implied covenant to develop, and indicate same accordingly.