While you are preparing for your real estate exam you may have come across the term, habendum clause.
We have no doubt that you’re aware it’s an important part of the contract. However, we also know you may not understand how it affects your rights and interests.
In that case, don’t worry! Here’s everything you need to know when you search around for habendum clauses (as well as some real estate exam prep)!
What Is a Habendum Clause?
A habendum clause, more commonly known as a to have and to hold clause, is defined as a portion of a deed in a contract that entails the property being transferred and who it is transferred to.
That said, a habendum clause describes the rights and interests that the grantor gives to the lessee in the lease or deed, in accordance with the contract transfer of such property.
You will commonly come across a phrase in each real estate transfer and all types of deeds and leases.
Fee Simple Absolute
Further, the type of property being transferred in a habendum clause is called the fee simple absolute.
Of course, a simple absolute fee grants ownership of a property, subject to state laws and property rights.
In this case, the acceptor in the lease does not have to worry about losing the ownership rights being handed over to the real estate if they stop using the said property in any way.
A habendum clause usually follows a grant clause, which defines the words, rights, and interests of transferring a property interest indicated in a contract.
What a Habendum Clause Looks Like
You might find yourself seeing a clause containing the following words provided in this example:
“To have and to hold the premises herein granted unto the party of the [lessee], and to the [succeeding heirs] of the party of the [lessee] for [number] years from this date, and as long as thereafter.”
A habendum clause usually qualifies the lease granted by referencing ownership rights, term commencement date, and term end date in the contracts’ description agreed upon.
Such a clause is more commonly found in the deeds and leases of real estate and commercial property contracts, oil and gas leases.
Habendum Clause in Real Estate
In the real estate industry, the habendum clause refers to the transfer of ownership of a property and describes the rights and restrictions of such a contract exchange.
It is very common that a real estate property is stated in the contract to be transferred to the lessee without any restrictions.
This clause then entails that the lessee has absolute ownership of the property, given that they have satisfied the conditions stated in the content of the contract.
That said, the new tenant stated in the real estate lease has the right to sell the property or transfer the rights and ownership to an heir they’ve chosen later on.
A common example of a restricted habendum clause in real estate contracts is a timeshare lease.
In a timeshare lease, this particular clause will be outlining the portions of ownership being transferred in question and any other timeshare lease restrictions.
The ownership of the property or the land itself may be subjected to a countdown, wherein the content of the contract may revert ownership to another agent.
Similarly, some habendum clauses in real estate leases may be based on the lifetime of the lessee.
Habendum Clause In the Oil and Gas Industry
Two separate terms typically define a habendum clause in oil and gas leases; the primary term and the secondary term.
When both primary and secondary terms are involved in the habendum clause, the interests of both the lessors and the lessees are represented in the said to have and to hold clause.
The primary term is a fixed period of time in which the habendum clauses state that the lessee has the option to pay delayed rentals and produce oil, gas, and other types of minerals indicated in the contract.
During the primary term, however, no production is necessary to keep the lease active.
This fixed primary term protects lessors from having their interests within the lessees’ reach without any production as stated by the habendum clause agreed upon unless the lease is extended.
During the secondary term, the time period under the habendum clause is indefinite.
As long as production and development continue within the scope of the land, the lease continues under the habendum clause in the given contract.
If production is achieved, it is not uncommon for oil leases to continue for years on end.
When on the search for a real estate deal or a production lease, it is without a doubt important for you to understand what a habendum clause entails.
You’ll have to negotiate the lease with the grantor. Misunderstandings about the habendum clause will cause you unwanted inconveniences.
While we don’t think that searching for an immediately great habendum clause is easy, we believe that proper evaluation is possible with the right knowledge.
After all, knowledge is power!
That said, we wish you the best in your deed search and lease endeavors!