Chapter 18 - § 18.6 • MINING LEASES

• Jurisdiction: Colorado

§ 18.6 • MINING LEASES³¹⁵

§ 18.6.1—Caption

A mining lease will commonly contain an option to purchase the leased property. (Such provisions are rare in oil and gas leases.) In 1955, apparently in response to complaints that landowners were not aware of the presence of such options in their leases, C.R.S. § 38-42-101 was enacted:

Every oil and gas or mining lease containing any provision whereby the lessor grants and sells to the lessee therein a right or option, at any time during the term thereof or any extensions or renewals thereof, to purchase any part of the lessor's mineral or royalty interest in, on, or under the leased premises shall clearly state in the heading or title of the lease that such right or option is contained therein; but the customary provision contained in such leases permitting the lessee to purchase or sell the lessor's share of production and to account to lessor for the proceeds thereof shall not be deemed to be such a right or option.

The "customary provision" mentioned is customary in oil and gas leases, but is rarely found in mining leases. A caption reading "Oil and Gas Lease With Option to Purchase" or "Mining Lease With Option to Purchase" satisfies the requirements of the statute.³¹⁶

C.R.S. § 38-42-102 provides:

Any such right or option contained in any oil and gas or mining lease which is executed subsequent to March 2, 1955, and the title or heading of which does not clearly state that such a right or option is contained therein shall be voidable at the option of the lessor, and upon adjudication by a court of competent jurisdiction that such right or option is voided by virtue of this article, no money paid to the lessor for such lease shall be returned to the lessee therein, but the failure of such lease to satisfy the requirements of this article shall not affect the validity of such lease except as to such right or option to purchase.

The above-quoted sections do not apply to options to renew or extend a lease.³¹⁷

§ 18.6.2—Implied Covenants in Mining Leases

Where the only consideration the lessor receives for the right to explore, develop, and remove the mineral is a royalty, there is an implied covenant to develop and operate with reasonable diligence.³¹⁸ When minimum royalties and annual rentals provided for in a lease are reasonably substantial in relation to the anticipated return from the property, they are in effect an agreed compensation for the lessee's failure to achieve reasonable production.³¹⁹ The...