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Insolvent Lessees

In recent years, ongoing low prices for natural gas in Western Canada have lead to a plethora of insolvencies among gas-focused industry operators.  Freehold mineral owners are particularly vulnerable should their lessee become insolvent.

When a property owner leases to a tenant and the tenant fails to pay the rent agreed upon in the lease, the landlord does not have to go to court to collect. The landlord has the right to seize the tenant’s property from the leased premises to recover the rent that is owed. This is known as the right of distress or distrain.

Oil and gas companies that encounter financial difficulties frequently stop paying royalties to their freehold owner-lessors.  Canadian courts have found that freehold royalties are a form of rent (1).  One might think that freehold owners would have the right of distress or distrain. Not so!  The Supreme Court has ruled that a freehold oil and gas lease is not really a lease but a profit `a prendre (2) (a right to enter into and take from the land of another).  Consequently, Canadian courts consider the non-payment of royalties to be a default under a freeholder’s lease agreement.  A freeholder’s only recourse when his lessee stops paying royalties is to serve a default notice on the lessee and, if royalties remain unpaid, to initiate a legal action.

Companies that encounter financial difficulties often file a Notice of Intention to Make a Proposal under the Companies’ Creditors Arrangement Act.  The court then issues a stay of all proceedings against the company.  The same thing happens in a receivership or bankruptcy.  This means that if a freeholder has filed a notice of default which has not been responded to, the freeholder cannot initiate a legal action for recovery of unpaid royalties and, even if the freeholder has already initiated a claim, the freeholder’s action is stayed.  The end result is that professional receivers, bankruptcy trustees, and the lawyers representing them do very well indeed from oil and gas industry operator insolvencies whereas freeholders become unsecured creditors and seldom receive full compensation for their unpaid royalties.  Often freeholders receive no compensation whatsoever and find the producing well on their mineral rights assigned to the Orphan Well Association for abandonment.  This is but one example of powerful vested interests profiting at the expense of freehold mineral owners – something that FHOA is striving to counter!

1. Scurry-Rainbow Oil Limited v. Galloway Estate, Alta. Q.B., [1993] A.J. No. 227
2. Berkheiser v. Berkheiser and Glaister, S.C.C. [1957] S.C.R. 387

We Can Help!

Lexin, Quicksilver, Scollard and Sequoia are just the largest of the dozens of oil and gas companies that have become insolvent in recent years, leaving their freehold owner-lessors as unsecured creditors under federal insolvency legislation.  The 2019 Supreme Court decision in the Redwater case will make the situation far worse.  As a member of FHOA, we help you to understand the impact of energy company insolvencies.

Additionally, given the low status of freehold owners in the bankruptcy hierarchy, members of FHOA are banding together to make their voice heard.

Join today to learn more about our common voice, and how we hope to impact the insolvency juggernaut.


How Can You Help?

The easiest way to help is to Become a Member!

If you can, get involved. If you have skills or training which could help FHOA attain its goals, let us know. FHOA always needs volunteers to assist with seminars, to help with phone outs before seminars or even join the Board.

Spread the word. The more members that FHOA has, the greater our potential influence. Many freeholders who could use our help, particularly those who do not use the internet, remain unaware of FHOA’s existence.

If you have time constraints, make a financial donation to assist us in paying for our involvement in judicial and regulatory hearings.


Want to Learn More and Get Involved?

Being a member of FHOA gives you many benefits and services not available to non-members (some additional fees may apply), including:

  • a common voice representing the interests of Freeholders with government bodies and regulators

  • help understanding leases and many other agreements

  • help understanding regulations and obligations to protect your rights

  • a knowledge base for some of the confusing technical information

  • access to experienced industry professionals to assist in negotiations

  • information about the going rate in your area, and so much more…..

*Additional fees may apply

Annual Membership
only $75!


  • We wish to thank FHOA, with special recognition to David Speirs, for the information /assistance he gave to us regarding the energy sector. His knowledge of Freehold Owner leases was particularly helpful to us as novices when we became Freehold owners over a decade ago.

    Garold and Yvonne Miller

  • I am eternally grateful for what I have learned through FHOA and their Board of Directors. Because of FHOA, our family can safeguard our mineral rights for future generations, and we have enhanced our lease negotiation skills as a collaborative family unit. The expertise and dedication of FHOA directors has supported our efforts in every aspect of mineral ownership.

    Joan Olafson

  • Our mineral rights have been passed down for generations. We joined FHOA in 2007 to help us understand an agreement with an oil company. FHOA was so helpful, providing suggestions were able to take the company and have adjustments made to our lease agreement. The information provided on the website, by FHOA representatives and at FHOA meetings helped us better understand lease provisions. If we had to sign another lease, I would have FHOA help again. Because of this value, we continue to be a member year after year.

    Jackie Anderson

  • Freehold Owner’s Association (“FHOA”) has a wide variety of information with access to various expertise for freehold mineral owners like me, who do not have the technical and legal expertise, nor the financial capability to do it on their own.

    Bill Schmidt

  • Our family is very thankful for FHOA. They made it possible to force a major oil producer to pay legitimate royalties owed to all five family members for off-set drilling beside our mineral rights.

    Betty Frey