The right, but not the obligation, to renew an existing lease
As we discussed previously, state and federal courts in Ohio have been asked to interpret the meaning of “paragraph 14” in oil and gas leases. On Oct. 30, 2013, the Sixth Circuit Court of Appeals held that paragraph 14 does not require a lessee to match a third-party offer or have the lease terminated. The federal court opinion issued in Stewart v. Chesapeake Exploration, L.L.C., 2013 U.S. App. LEXIS 22302, 2013 FED App. 0928N (6th Cir.), 2013 WL 5832343 (6th Cir. Ohio 2013) is consistent with other holdings interpreting this lease provision.
The court found the landowners’ interpretation “strange at best,” “implausible” and in conflict with several other provisions in the lease.
The court closed by holding:
“In summary, we agree with the district court that, by its terms, Paragraph 14 does not grant the landowners a right to terminate their leases, but instead grants Chesapeake a ‘preferential right to renew’ them.”
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The plaintiffs in this case are a group of landowners in Nobel County who, from 2008 to 2010, entered into oil and gas leases, some of which were assigned to Chesapeake Exploration, LLC. Some of the leases had a three-year primary term, some five years, with typical provisions to extend the primary term. However, the lease provision really at issue was titled “Preferential Right to Renew,” referred to as “paragraph 14.” Both the plaintiffs and defendants filed motions for summary judgment. Judge Edmund A. Sargus Jr. of the federal District Court in Columbus decided the case on Sept. 26, 2013. Wiley v. Triad Hunter LLC, 2013 U.S. Dist. LEXIS 143058 United States District Court for the Southern District of Ohio, Eastern Division.
Paragraph 14 provides, in summary, that if during the primary term and one year thereafter, the lessor receives an acceptable, bona fide third-party offer to lease, the lessor would provide the lessee with the particulars. The lessee then would have 30 days to advise the lessor of its agreement to match the offer. Also, any lease “granted by lessor in contravention of the purposes of this paragraph shall be deemed null and void.”
The plaintiffs received a bona fide offer to lease their land. At this point, let me digress. Hoping that an existing lease will expire, third parties will offer a new lease to the landowner, sometimes called a “top lease,” that will take effect upon the existing lease’s termination. Paragraph 14 would seem to protect …
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For estate planning purposes, in 2005 Willard and Ruth Liggett put real estate they owned into a revocable trusts with themselves as trustees. In 2008, the Liggetts signed an oil and gas lease in their personal capacity. In 2012, Plaintiffs Willard and Ruth Liggett, co-trustees under 10/10/05 Liggett Trusts, filed a complaint in Tuscarawas County. The Lessee, Chesapeake Exploration, L.L.C., counterclaimed. The case was removed to federal court in Youngstown, Ohio. See Liggett v. Chesapeake Exploration, L.L.C., 2013 U.S. Dist. LEXIS 147392, United States District Court for the Northern District of Ohio, Eastern Division.
The Liggetts claimed the lease was unenforceable because it was signed by them personally, not as trustees, and asked for summary judgment. Chesapeake asked for a declaratory judgment that the lease is valid and enforceable, and filed counterclaims.
On Oct. 11, 2013, Judge Benita Y. Pearson ruled that the lease is valid and enforceable. Chesapeake’s motion for summary judgment for its claims against the Liggetts remain pending for trial. They are:…
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