Beware the Warranty clause!
Turns out that after a year and a half I will have to pay back a bonus check in the amount of $30K. due to some red tape and an old lease that was hidden in the archives. - I gave about $40 of that bonus to the IRS, so I was wondering 2 things.
1. Will I have to pay back the whole amount or just the untaxed portion(I'm guessing all)
2.If I do pay them back $30K, can I file a 1099- I want to make sure the IRS bills them like they did me. Fair is Fair.
It's sad that I was not warned at the time I signed the lease and took the bonus check that I might have to return it, but I'll admit any penalty for ignorance rests with me.
Be careful what you sign-
any insight on how to make sure the IRS knows that the money was given back appreciated- I know this is not a Tax forum- just looking for any info from someone with a previous experience
I would advise you not to pay one red cent of this back to the Landman, Broker or the company that might have the lease. You leased in good faith. It was the landman and the lease broker he worked for that made mistakes, if any were made. It is just a scare tactic. What proof has he given you? None probably. I have known this to have happened many times with a lot of people. Most all of them don't pay it back. A lot of people have already spent most of the money anyway. In Texas you would not have to pay it back! Any way when I sign oil and gas leases I have wording in the lease that I am not going to guarantee the title or warrant it. I tell the agent that I am not going to guarantee his work!
Mineral Owner,
Pennyman probably did not have a "no warranty of title" clause in his lease - In fact, there was probably a clause saying that he warrantied title. Not sure what Texas has to do with any of this.
Pennyman, however, if that is not the case, you might not have to pay back the bonus. You can always tell them that you spent it and they might just not mess with you and forget about it, or they might tell you they will see you in court. You should be able to get the amount paid to the IRS as a tax credit for next year. The Oil Co. should not have to pay taxes on the repaid bonus because it is not income, but just a reimbursement.
Questions: 1. Did the lease broker pay you with their name on the lease or an oil company like EOG or Chesapeake?
2. They will try to first bluff you about giving it back. IF you pay them the oil company if any may not get the money and the landman and lease broker kept it.
I don't believe that they will take you to court over such a small amount of money, their legal fee's might be nearly that. When you leased it you relied on the landman and his broker to know what they were doing.
Don't pay them anything until you get to the court house door. Also they might be willing to take a lot lesser amount.
This is most interesting. A person could put additional language in the lease, The lease bonus, for any reason, is not refundable.
"detrimental reliance" tell the land man you relied on his representation to your detriment & there will be no reimbursement, IMO its his problem & mistake, nothing is hidden in the archives, that is BS, he should have done a though search county records, nothing hidden.
Dear Robert,
I will include your "suggested" language into my lease that I am still negotiating.
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Update on my lease negotiations: Under No. 26 Pipeline ROW provision, the operator agrees to compensate me $50/rod for any P/L and more if pipe is over 6 inches, IF constructed, and IF needed. (I have a hunch they may need my property for distribution.)
Then the provision goes onto read that Lessor agrees to concurrently execute an associated Right of Way instrument as requested and prepared by Lessee, etc., etc.
Am I correct in assuming that they are asking me me to sign a "blind" instrument if I accept their per rod offer?
Do I have any alternatives except to say "NO?"
Any comments are appreciated!
Thank you.
Pat
Dear Pat, I always enjoy your intellectual posts. You are right on target. There might be better ideas out there, but for now, I would pen in between the words: execute ~ an associated these words: "if acceptable".
It would then read: Lessor agrees to concurrently execute, if acceptable, an associated Right of Way instrument as requested and prepared by Lessee, etc., etc.
Bob Malone, Oil and Gas Auditor
This is pretty much my feeling on the matter in a nutshell- they mailed me copies of a lease from 40 years ago, copy is blurry but unreadable- anyways it was public record, now and then- so why did they make the offer if the minerals were already leased-
These guys are in Grady county, a few blocks from the records-I was told the title is clear and heres your money-I have no evidence that he told me that, but I think a Judge would like to hear the land mans explanation as to why he sent the bonus before discovering the fact that the minerals were not available for lease. The truth is that they lost out on the lease to another oil company and now they are going back and trying to get their ill planned investment back
harry said:
"detrimental reliance" tell the land man you relied on his representation to your detriment & there will be no reimbursement, IMO its his problem & mistake, nothing is hidden in the archives, that is BS, he should have done a though search county records, nothing hidden.
Pat:
I realize you know your business; but, I personally believe you are selling yourself short on the pipeline ROW. First, Pipeline ROW's should definitely be a stand alone document that should be referenced in the lease; but, is negotiated separately. At least that is my opinion since an oil lease may come and go; but, if not done properly, the pipeline ROW could very well be with you and your property for eternity. Anyway, $20 -$25/foot is the minimum for even a single small diameter line, since that is usually the initial offer from the pipeline companies in my area and I can't imagine anything less. By the way, that is just a starting point depending on the size of the pipe and location of ROW. $50/rod is only $3/foot. That was the going rate in 1970; but, land owners have learned a little since the 70's.
Good luck on your lease.
Ms. Pat Malone said:
Dear Robert,
I will include your "suggested" language into my lease that I am still negotiating.
***************************************************
Update on my lease negotiations: Under No. 26 Pipeline ROW provision, the operator agrees to compensate me $50/rod for any P/L and more if pipe is over 6 inches, IF constructed, and IF needed. (I have a hunch they may need my property for distribution.)
Then the provision goes onto read that Lessor agrees to concurrently execute an associated Right of Way instrument as requested and prepared by Lessee, etc., etc.
Am I correct in assuming that they are asking me me to sign a "blind" instrument if I accept their per rod offer?
Do I have any alternatives except to say "NO?"
Any comments are appreciated!
Thank you.
Pat
I'll second what Bigfoot said. Here in WV the standard used to be $1/foot/inch of diameter. It's gone up considerably of late. The pipeline ROW agreement should be a separate agreement, just like gas storage and injection wells and all that. The lease should just be for oil and gas production only. Law in your area may differ from WV, but I'd be surprised if that advice wasn't sound. Consult an attorney (says the WV attorney), and make sure it's not one that just has "oil and gas" as a bullet point on their web site.
Ms. Pat Malone said:
Dear Robert,
I will include your "suggested" language into my lease that I am still negotiating.
***************************************************
Update on my lease negotiations: Under No. 26 Pipeline ROW provision, the operator agrees to compensate me $50/rod for any P/L and more if pipe is over 6 inches, IF constructed, and IF needed. (I have a hunch they may need my property for distribution.)
Then the provision goes onto read that Lessor agrees to concurrently execute an associated Right of Way instrument as requested and prepared by Lessee, etc., etc.
Am I correct in assuming that they are asking me me to sign a "blind" instrument if I accept their per rod offer?
Do I have any alternatives except to say "NO?"
Any comments are appreciated!
Thank you.
Pat
Thank you Bigfoot, Robert, and Kyle. As much as I sometimes think I do (or would like to) I don't know always know my business. That's why the opinions/suggestions of others really do matter. I deleted all of the No. 26 Pipeline ROW provision and replaced it with "Lessor agrees to 'negotiate' and execute an 'acceptable' pipeline ROW instrument" saved the file and emailed this latest revision to the landman.
He called me ASAP. I told him that their per rod offer was not acceptable and that the cost of the easement would be per foot ... length x width, because that's how my Father bought the land and that's how it will be sold ... and we would negotiate the easement terms and damages later.
He said that the operator might leave me out of the pool and I wouldn't get any $$. I told him that they can always go around me with their pipeline.
I'm not wealthy and the money could really help the farm with much needed improvements, but, bottom line, I love the farm and know what I can live with. It's a gamble I'll deal with.
Thank you.
Pat
One thing I've been suggesting people do is ask for a monthly/quarterly/yearly payment. These easements and RoWs are going to be in place for decades in many cases, and it only makes sense to have a recurring payment. Tie it to inflation, too, so you don't saddle people 100 years from now with a ridiculously low payment. Example: the old flat rate royalty for gas wells of $200/year from the late 1800s-early 1900s. $200 from 1909 would be $5,058.04 in 2014 according to the online calculator I just used.
Kyle I was thinking this same thing (tie it to inflation) so that in years to come you have a much better payment. We have all learned that sometimes old leases do not expire!
Kitchen and Kyle:
Great stuff. The drilling activity as well as oil leasing has slowed considerably; but, the good and valuable information keeps on coming. With that said, IMO, forward thinking is an extremely important aspect of all of these contracts and that is why it is so important to do the absolute best we can before we sign any of these contracts. At least an oil lease does have a royalty percentage that to some degree builds in at least some of the inflation factor; but, unless the specifics are built in on a Pipeline ROW agreement up front, it will live on potentially forever.
I know this is a little windy; but, I have a pipeline ROW that runs across the full width of my home place property (about one mile). My dad signed this "good faith" agreement in 1984. It is a 50 foot "Permanent" ROW. One time payment for basically nothing ( I believe $20/Rod) and it was used for about a year and has been absolutely dead since then. Last year a company drilled a couple of wells fairly close to me and since that agreement was considered Permanent, they pressure checked the line and put it back in service after all those years and didn't even contact me once. One of my neighbors had a two year "no use" clause in the ROW agreement that was signed by a previous owner and even though the line was still on his place and undisturbed, the pipeline company paid him $30/foot, over $25,000, to put only a small section of the 8" polyethylene line back in service. I just wanted everyone to see the results of not doing a good job upfront. Don't listen to the leasing agents great salesmanship or your neighbors wants or needs, think about you, your family and the future generations.
Kitchen said:
Kyle I was thinking this same thing (tie it to inflation) so that in years to come you have a much better payment. We have all learned that sometimes old leases do not expire!
Bigfoot, thanks for the personal story. That kind of thing is very helpful for others. Now hopefully they'll avoid making the same mistake.