The initial approach of many land agents seeking to lease freehold mineral rights consists of a letter to the freeholder advising of the proposed royalty rate, cap on deductions, primary term and bonus. The letter typically advises that the form of lease will be CAPL 91 and asks the freeholder to indicate his or her agreement to the terms by signing and returning the letter at which point the lease agreement will be provided.
The Freehold Owners Association considers this approach to be unethical. To properly protect your potentially valuable non-renewable resources in a freehold lease agreement, you need to understand the terms and conditions in the agreement. You clearly have no opportunity to do so if you have agreed to enter into the agreement before you see it. In FHOA’s view, this approach consists of an agreement to agree and such agreements are unenforceable1. However FHOA recommends avoiding any potential legal dispute by responding to this approach by requesting a copy of the proposed lease before you sign anything and by contacting FHOA.
FHOA can help you to understand the terms and conditions in CAPL 91 leases and other lease agreements (see “About Leases”). FHOA can also help you to understand the other critical issue involved in leasing – the technical circumstances in the vicinity of your mineral rights which may impact your leasing negotiations (see “FHOA Member Services”, “Technical Service Reports”).
1. Fridman, G.H.L., The Law of Contract (1999) 4d, p. 24, Thomson Canada Limited