Habendum Clause

What is the Habendum Clause?

The habendum clause is a clause in deed or lease contracts that defines the lessee’s rights, types of interest, and other details of ownership. Consisting of basic legal language, they are included in real estate and mineral rights agreements to provide a clear understanding of the contractual terms. The habendum clause generally begins with the words “to have and to hold.”

Habendum Clause Example

Shown below is a brief example of what a habendum clause would look like in a property rights agreement during the transfer of ownership.

“LESSEE SHALL HAVE AND HOLD the premises for a term of ten (10) years that shall commence on the Term Commencement Date and shall be ending on the day that is immediately prior to the tenth (10) anniversary of the lease.”

What is a Fee Simple Absolute?

A fee simple absolute refers to a type of property title transfer that uses the habendum clause. Subject to government laws and property rights, a fee simple absolute grants complete ownership of a property.

Habendum Clause in Real Estate

In real estate, the habendum clause is the portion of a lease contract that reports that rights and interests are given to the lessee (tenant) after the transfer of ownership. Apart from the rights and interests given to the lessee, the habendum clause may also describe the specific restrictions set by the landowner.

In most cases, the habendum clause states that the property is transferred without restrictions once the lessee has lived up to previous obligations (payment of the lease). Once the payment is completed, the lessee has the right to do whatever they want with the land assuming they abide by governmental and property laws.

Habendum Clause in the Oil and Gas Industry

In the oil and gas industry, the habendum clause (also known as the term clause) sets forth the primary and secondary term in which a company can have rights to and operate on a piece of land. If the land is not being operated on or the terms expire, the lessor has the right to sell the piece of land to another buyer.

• Primary Term: The primary term can vary in time based on how lucrative the reserve is in terms of production and exploration. Usually, a primary term is about one to ten years long. If the natural resource reserve passes the primary term without any production, the rights expire.

• Secondary Term: The secondary term begins if the primary term expires, and there is production on the reserve.

Habendum Clause Restrictions

1. Timeshare Lease

In certain situations, a timeshare lease may be subject to a countdown. It means ownership will revert back to another entity if specific criteria are met.

2. Treaty Lands

Some treaty land agreements restrict ownership by capping the title transfer rights at 100 years. It means that after 100 years, the land cannot be transferred. As for the investing aspect, the treaty land is very attractive to buyers during the first half of ownership and becomes a discount during the second half due to the transfer cap.

3. Transfer After Death

For some lease agreements, the transfer of ownership is restricted once the possessor dies. It means the title transfers back to the original owner once the current possessor dies.

More Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

• Lease Classifications
• Month-to-Month Tenancy
• Defeasance
• Exculpatory Clause
• Hell or High Water Contract
• See all commercial lending resources