Legal Definitions - lesser-interest clause

A lesser-interest clause is a provision in an oil-and-gas lease that allows the lessee to reduce payments proportionately if the lessor turns out to own less than 100% of the mineral interest. This clause is also known as a proportionate-reduction clause.

Suppose a landowner leases their land to an oil company for drilling purposes. The lease agreement includes a lesser-interest clause that states if the landowner only owns 75% of the mineral rights, the oil company will only pay 75% of the agreed-upon amount. This clause protects the oil company from overpaying for a lease and ensures that the landowner is only compensated for the percentage of mineral rights they actually own.

Another example could be a situation where a landowner has already leased a portion of their mineral rights to another company. In this case, the lesser-interest clause would allow the new lessee to pay a reduced amount based on the percentage of mineral rights that are still available for lease.

Overall, the lesser-interest clause is a way to ensure fair compensation for both the landowner and the lessee in an oil-and-gas lease agreement.