As an Oklahoma landman lawyer, one of the most frequent questions I receive concerns lease terms. Specifically, clients want to know if it’s better to sign a five-year lease or a hybrid lease with a three-year primary term and a two-year extension. The answer isn’t always clear-cut, as both options have advantages and disadvantages.
With a five-year lease, you have the security of knowing you’ll have a steady stream of income for the next half-decade. This can be especially appealing if you’re looking to finance a drilling project or other significant investment. However, a five-year lease can also be a gamble if prices drop or other market factors change.
The Advantages of a Hybrid Lease
A hybrid lease, on the other hand, provides a bit more flexibility. With a shorter primary term, you can renegotiate the lease or find a new tenant if market conditions change. Plus, with a two-year extension, you can still lock in a long-term tenant if everything is going well.
Of course, there are also downsides to a hybrid lease. For one, you’ll need to spend time and resources finding a new tenant every three years if you choose not to extend. Additionally, the shorter primary term may make it harder to secure financing if you’re looking to make a significant investment.
Get Personalized Advice from a Land Man and Lawyer
Ultimately, the decision between a five-year lease and a hybrid lease depends on your specific circumstances and goals. That’s why I always recommend reaching out to a land services attorney in Oklahoma to discuss your options. Visit online at landman.lawyer to schedule your consultation today!