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Simple English definitions for legal terms
subrogation clause
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A quick definition of subrogation clause:
A subrogation clause is a part of an agreement that allows one party to pay for certain expenses related to the property and then recover those payments from future earnings. For example, in an oil and gas lease, the lessee may be allowed to pay taxes or mortgages on the property and then deduct those payments from the profits they make from the lease. This clause helps protect the interests of both parties and ensures that the property is properly maintained and managed.
A more thorough explanation:
A subrogation clause is a provision in a contract that allows one party to pay off certain debts or obligations on behalf of another party and then recover those payments from future proceeds. In the context of oil and gas leases, a subrogation clause may allow the lessee to pay taxes, mortgages, or other encumbrances on the leased property and then recoup those payments from the revenue generated by the lease.
Imagine that a company leases a piece of land for oil and gas exploration. The land has an outstanding mortgage that the lessor has failed to pay. The lessee may choose to pay off the mortgage in order to avoid any legal issues or complications with the lender. However, the subrogation clause in the lease would allow the lessee to recover the amount paid for the mortgage from the revenue generated by the lease.
Another example could be if the leased property has outstanding property taxes. The lessee could pay the taxes and then recover that payment from the revenue generated by the lease.
These examples illustrate how a subrogation clause can protect the lessee from financial liabilities associated with the leased property and ensure that they are able to recoup any payments made on behalf of the lessor.