Oil and gas leases are unique instruments that, on their face, appear to be contracts or traditional landlord–tenant leases. Indeed, landowners often desire to have them treated as such by including provisions giving a lessor power to limit or control any assignment of the lease. Typically, this takes the form of a consent-to-assign provision seen in many types of ordinary contracts and leases. In Texas, however, an oil gas lease actually conveys a fee simple property interest; and property law, far more than contract or landlord–tenant law, greatly disfavors any restraint that acts to restrict the free transferability (or “alienation”) of property rights. As such, an inherent tension may exist between a lessor who has a right to withhold consent to an assignment under the lease terms and a lessee who desires to transfer the drilling rights to others. Nonetheless, Texas courts have rarely had occasion to pass on the enforceability of consent-to-assign provisions in the oil and gas leasing context, primarily because commercial parties generally are more apt to be reasonable and reach agreements when times are good. The prolonged downturn in oil prices, however, is likely to result in increased litigation in many areas. There is a potential, in particular, that lessors may seek to exploit the lack of developed case law in the consent-to-assign area by demanding “consent fees” or attempting to terminate leases if assigned without consent. This article thus analyzes the legal underpinnings in Texas to provide guidance to lessees faced with unreasonable demands or litigation risk and concludes that, in most situations, a consent-to-assign provision is not as enforceable as it may appear, while further suggesting practical ways in which to mitigate the risks of routine assignment.
T. Ray Guy, et al.,
The Enforceability of Consent-to-Assign Provisions in Texas Oil and Gas Leases,
SMU L. Rev.