Legal Definitions - leaseholder royalty

A leaseholder royalty refers to a payment received by the owner of a property (known as the "lessor") who has granted a lease allowing another party (the "lessee") to extract natural resources, such as oil, gas, minerals, or timber, from their land. It represents a specified percentage or share of the resources produced, or the value derived from those resources, and is typically paid to the lessor free of the costs associated with the exploration, drilling, extraction, and production of the resource. In this context, the "leaseholder" refers to the property owner who holds the right to receive this royalty under the terms of the lease they granted.

• Example 1 (Oil and Gas):

  Imagine a rancher who owns a large property in Texas. An energy company approaches the rancher, believing there might be significant oil and gas reserves beneath the land. The rancher signs an oil and gas lease with the company, granting them the right to drill and extract resources. The lease agreement stipulates that the rancher will receive a 1/8th royalty on all oil and gas produced and sold from the property. This 1/8th share, paid to the rancher as the property owner who granted the lease, is a leaseholder royalty. The rancher holds the right to this payment under the lease agreement and does not bear the costs of drilling or production.

• Example 2 (Mineral Mining):

  Consider a family that owns a large parcel of land in Arizona, which is known to contain valuable copper deposits. They enter into a mining lease agreement with a mining corporation, allowing the company to excavate and process the copper ore. The agreement specifies that the family will receive 3% of the gross sales value of all copper extracted from their property. This 3% payment to the family, as the owners who leased their land for mining, constitutes a leaseholder royalty. They hold the right to this percentage of the extracted resource's value, free from the operational costs of the mining company.

• Example 3 (Timber Harvesting):

  Suppose an individual owns a substantial forest in Oregon with mature timber ready for harvest. They decide to lease the timber rights to a logging company for a period of five years. The lease agreement states that the owner will receive 10% of the market value of all timber harvested from the property. The 10% share paid to the forest owner, who granted the logging lease, is a leaseholder royalty. The owner holds the right to this portion of the timber's value, without being responsible for the costs of felling, processing, or transporting the logs.