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Simple English definitions for legal terms
proportionate-reduction clause
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A quick definition of proportionate-reduction clause:
A proportionate-reduction clause, also known as a lesser-interest clause in the oil and gas industry, is a provision in a lease agreement that allows the lessee to reduce payments if the lessor owns less than 100% of the mineral interest. This means that if the lessor does not have full ownership of the minerals being leased, the lessee can adjust their payments accordingly.
A more thorough explanation:
A proportionate-reduction clause, also known as a lesser-interest clause, is a provision in an oil-and-gas lease that allows the lessee to reduce payments proportionately if the lessor owns less than 100% of the mineral interest.
For example, if a lessor owns only 50% of the mineral interest, the lessee would only be required to pay 50% of the agreed-upon payments. This clause protects the lessee from overpaying for a lease when the lessor does not own the full mineral interest.
Another example would be if a lessor owns 75% of the mineral interest, the lessee would only be required to pay 75% of the agreed-upon payments.
The proportionate-reduction clause is important in ensuring fair and equitable payments between the lessee and lessor in oil-and-gas leases.