Fee simple vs Leasehold, Leased Fees

Fee Simple vs Leasehold, Leased Fees in Oil and Gas

There are many different kinds of transactions associated with the buying, selling, and leasing of property. Mineral rights are no different. Whenever you buy or you sell or lease mineral rights, you may be entering into one of several kinds of agreements. In this article, we are going to define and explain some of the most common types of mineral rights ownership such as fee simple vs. leasehold.

Fee Simple Estate and Fee Simple Interests

A fee simple estate, which is also known as an “estate in fee simple” or “fee-simple title,” is traditionally viewed as the highest form of real estate ownership. In a fee simple estate, a person or entity owns both the surface rights and mineral rights of a piece of land.

When a fee simple agreement is made, the new owner is said to have a “fee simple interest” in the property. The type of ownership is considered “freehold,” which is a term that is most commonly used in European countries like England and Wales.

Leasehold Ownership and Leased Fees

In a leasehold, pieces of land are often divided into what is known as a “split estate.” Within a split estate, the landowner retains ownership of the property’s surface rights, while leasing out the mineral rights below the surface. In an oil and gas lease, a property’s full ownership is usually split between the surface rights owner and an oil or gas company.

In this split, the “leasehold” is the interest of the lessee and the “leased fee” is the amount of money or capital that is provided to the property owner. In oil and gas leases, mineral rights owners are often granted upfront leased fees for the rights to explore the property for precious minerals.

When referring to the property itself, it is common for owners and lessee’s to refer to their assets as “leased fee estates” and “leasehold estates” accordingly.