Common use of Defect Value Clause in Contracts

Defect Value. “Title Defect Value” means the amount by which the Allocated Value of an Asset has been reduced by a Title Defect, and shall be determined by Buyer and the Seller Representative in good faith taking into account all relevant factors, including without limitation, the following: (i) if the Title Defect is a lien or encumbrance on the Asset, the Title Defect Value shall be the cost of removing such lien or encumbrance, (ii) if the Title Defect is an actual reduction in NRI or Mineral Interest, the Title Defect Value shall be the Allocated Value for the particular Asset, proportionately reduced by the ratio of the actual NRI/Mineral Interest to the represented NRI/Mineral Interest and (iii) if the Title Defect does not fall into subsection (i) or (ii), then the factors to be considered shall include (a) the Allocated Value of the affected Asset, (b) the current status of the Asset affected by the Title Defect (i.e., proved developed producing, etc.) and if such interest is producing, the present value of the future cash flow, net of capital expenditures, expected to be generated therefrom, (c) if the Title Defect represents only a possibility of title failure, the probability that such failure will occur, and (d) the legal effect of the Title Defect.