References to Unrecorded Documents in Assignments of Leasehold Interest

In Louisiana, an instrument involving immovable property is effective as to third persons only from the time it is filed in the registry in the parish where the property is located. This is known as the Public Records Doctrine. Often parties desire to convey interest in oil and gas leases subject to the terms and conditions of unrecorded documents.  While this may appear to conflict with the Public Records Doctrine, such rights and obligations in assumed unrecorded documents are enforceable between the parties to the transaction.  As one court recently explained: “The Louisiana Public Records Doctrine expresses a public policy that interest in real estate must be recorded in order to affect third persons.  Simply put, an instrument in writing affecting immovable property which is not recorded is null and void except between the parties.”  However, with some careful drafting techniques, parties can attempt to ensure that any subsequent assignee of those interests is also subject to such unrecorded agreements.

A commonly used method to control the identity of a future assignee and to ensure its assumption of unrecorded obligations is to include a “consent to assign” clause in the original assignment.  Consents to assign require a party to receive consent before any future assignment can be made.  Requiring such consent to be obtained before any subsequent assignment provides the original assignor with the opportunity to require the new assignee to assume the same terms and conditions as the original assignee, including the obligations under unrecorded documents.

From a best practices standpoint, the drafter should also consider including in the original assignment a requirement that all future assignments must be made subject to the unrecorded agreement and that the parties to any subsequent assignment must acknowledge that they are familiar with the terms of the unrecorded agreement.  Including such language in the original assignment may put third parties on notice that the interest being acquired is subject to additional rights and obligations and may protect the original assignor from consequences of such notice not being in the public records.

From the standpoint of third party purchaser, companies that acquire leasehold interest subject to conditional reversions or reservations, where no instrument has been recorded reflecting the occurrence of the condition need to be aware of a legislative exception to the public records doctrine.   Louisiana Civil Code article 3339 provides in pertinent part: “the occurrence of a suspensive or resolutory condition, the exercise of an option or the right of first refusal, a tacit acceptance, a termination of rights that depend upon the occurrence of a condition, and a similar matter pertaining to rights and obligations evidenced by a recorded instrument are effective as to a third person although not evidenced of record.”  Thus, third parties are deemed to be put on notice that such a condition has in fact been met even though the public records may not actually evidence the occurrence or the result of such occurrence.

Assignors must be diligent in their efforts to draft their assignments in a manner that allows them to ensure that further assignees are bound by the unrecorded agreements.  Assignees must closely examine the public records for consents to assign (which consents may require an assignee to acquire the interests subject to unrecorded agreements) and notices of unrecorded agreements.

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