On September 26, 2014, in Hupp v. Beck, the 7th District Court of Appeals in Ohio overturned the trial court’s decision that certain oil and gas leases in Monroe County, Ohio between landowners and Beck Energy Corporation (Beck) were void from their inception. On Friday, November 7, 2014, the plaintiff landowners filed an appeal with the Ohio Supreme Court.
The leases at issue contained clauses regarding the lease term that are commonly used in oil and gas leases, and therefore the outcome of this litigation can have far reaching effects in Ohio. The lease term was two-tiered, with a 10-year primary term and a secondary term that could continue indefinitely so long as certain conditions were met. During the primary term, if the property wasn’t being drilled, Beck, as the lessee, would be obligated to pay a ‘delay rental’ payment to the landowner. Landowners challenged Beck’s form lease arguing that this two-tiered term structure rendered the leases “no-term” or “perpetual” leases, which are contrary to public policy and therefore void.
While the trial court agreed with the landowners, the 7th District Court of Appeals disagreed and reaffirmed the viability of leases containing these typical provisions. The 7th District covers the following Ohio counties: Belmont, Carroll, Columbiana, Harrison, Jefferson, Mahoning, Monroe and Noble. Now that an appeal has been filed with the Ohio Supreme Court, we wait. The court typically (but not always) announces whether it will accept an appeal approximately 2 to 4 months after the appellee’s memorandum in response is filed. If the Ohio Supreme Court elects to hear the landowners’ appeal and decides in the landowners’ favor, it could trigger a massive scramble by gas and oil companies to rewrite their leases.