The Lawletter Vol 40 No 11

Alistair Edwards—Senior Attorney, National Legal Research Group

     Does a party buying mineral rights have to disclose to the vendor before the sale that it already has a deal in place to sell the mineral rights to a third party for a much higher price? In McCarthy v. Evolution Petroleum Corp., 2014-2607 (La. 10/14/15), 2015 WL 5972515, the court recently considered the novel issue of whether a mineral lessee who had purchased the lessor's mineral rights was liable to the lessor under a fraud-by-silence claim when the lessee failed to disclose to the lessor at the time of the purchase that it had already negotiated the resale of the rights to a third party for a significantly higher price.

     In considering this issue, the court pointed out the well-established rule (codified by Louisiana statute) that "[a] mineral lessee is not under a fiduciary obligation to his lessor, but he is bound to perform the contract in good faith and to develop and operate the property leased as a reasonably prudent operator for the mutual benefit of himself and his lessor." La. Rev. Stat. Ann. § 31:122. This language, which focuses on mineral development operations, not the selling of mineral rights, did not, according to the court, impose on the lessee/purchaser a duty to disclose to the lessor/vendor that the lessee already had a deal in place to resell the mineral rights to a third party for a much higher price.

The Lawletter Vol 40 No 7

Alistair Edwards, Senior Attorney, National Legal Research Group

     Under the stranger-to-the-deed rule, a deed with a reservation or exception by the grantor in favor of a third party, a so-called stranger to the deed, does not create a valid interest in favor of that third party. For example, a reservation in a deed purporting to create a life estate in a third party (a stranger) may very well be ineffective. Many jurisdictions still adhere to some form of the stranger-to-the-deed rule.

     What happens, though, when a grantor gives a deed containing a right of first refusal in favor of a third party or parties? In other words, the grantor did not create a right of first refusal in himself but in favor of a stranger to the transaction. The effect of a right of first refusal, also called a preemptive right, is to bind the selling party to not sell without first giving the person holding the right the opportunity to purchase the real property at the price specified. But does the stranger-to-the-deed rule invalidate a right of first refusal given to the third party/stranger?

The Lawletter Vol 40 No 5

Alistair Edwards, Senior Attorney, National Legal Research Group

      Recently, in Francis v. Kings Park Manor, Inc., No. 14-cv-3555 (ADS)(GRB), 2015 WL 1189579 (E.D.N.Y. signed Mar. 16, 2015), the U.S. District Court for the Eastern District of New York held that an African-American apartment resident had a plausible claim for breach of the implied warranty of habitability based on the harassing behavior of a next-door neighbor tenant. In that case, the plaintiff's next-door neighbor, among other things, repeatedly made racially offensive comments and threats to the plaintiff, which conduct led at one point to the neighbor's arrest for aggravated harassment. Despite the plaintiff's complaints to the property management company in charge of the apartment complex, the management company took little action to address the plaintiff's complaints.