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Understanding the Continuous-Operations Clause in Lease Agreements
Definition & Meaning
A continuous-operations clause is a provision in a lease that allows the lessee to maintain operations on the leased property without interruption. In the context of oil and gas leases, this clause permits the lessee to continue drilling wells that were started before the lease expired and to initiate new drilling activities. This clause is designed to give the lessee adequate time to fully develop the leased area, after which they are expected to relinquish any portions of the lease that are not necessary for production.
In commercial leases, particularly in shopping centers, a continuous-operations clause requires tenants to operate their businesses continuously throughout the lease term. This ensures landlords can maintain rental income and a vibrant tenant mix.
Table of content
Legal Use & context
Continuous-operations clauses are primarily used in lease agreements related to oil and gas exploration and commercial real estate. In oil and gas law, these clauses are crucial for ensuring that leases remain active during periods of development. In commercial leases, they help landlords manage tenant occupancy and ensure the economic viability of shopping centers.
Users can manage these leases using legal forms available through platforms like US Legal Forms, which provide templates drafted by attorneys for both oil and gas leases and commercial leases.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: An oil company holds a lease with a continuous-operations clause. They begin drilling a well before the lease expires. Due to unforeseen delays, they are unable to produce oil immediately. The clause allows them to continue their operations without losing the lease.
Example 2: A retail store in a shopping center has a continuous-operations clause in its lease. If the store temporarily closes for renovations, the landlord may have grounds to enforce the clause, ensuring the store resumes operations promptly to maintain the shopping center's appeal.
State-by-state differences
Examples of state differences (not exhaustive):
State
Continuous Operations Clause Variations
Kansas
Continuous operations clauses are essential for extending leases without production.
California
Similar provisions exist, but specific requirements may differ based on local regulations.
Texas
Continuous operations clauses are commonly used, especially in oil and gas leases.
This is not a complete list. State laws vary and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Continuous-Operations Clause
Allows ongoing operations under a lease without interruption.
Focuses on maintaining lease validity through continuous activity.
Force Majeure Clause
Excuses performance under a contract due to unforeseen events.
Applies to external factors preventing operations, not lease continuity.
Termination Clause
Specifies conditions under which a lease can be terminated.
Contrasts with continuous operations by potentially ending the lease.
Common misunderstandings
What to do if this term applies to you
If you are involved in a lease with a continuous-operations clause, ensure you understand your obligations regarding continuous operation. If you are a landlord, consider including this clause to protect your investment. Users can explore US Legal Forms for templates that can help manage these situations effectively. If you face complex issues, consulting a legal professional is advisable.
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