Are you buying oil and gas leases in Ohio and expecting to be paid for your work? Consider Dundics v. Eric Petroleum, in which the Ohio Supreme Court concluded that land professionals who do not possess an Ohio real estate broker’s license are not entitled to bring suit to recover compensation for acquiring oil and gas leases.A “standard” arrangement
Dundics and Eric agreed to what you will recognize as a pretty standard lease-buying agreement. As the court described it, the landman would find property owners, negotiate leases, and work with Eric to obtain executed leases and transfer them to Eric. In exchange, Eric would compensate the landmen with a fixed per-acre payment for leases obtained and delivered, plus an override.
The landman’s plea
- Land professionals obtaining oil and gas leases for sophisticated oil and gas clients should not be required to be licensed real estate brokers.
- The real estate licensing statute was not intended to cover oil and gas land professionals because their services are substantially different than residential or commercial real estate agents and their activity is limited to a very small, specific area of real estate rights.
- It doesn’t make sense to lump oil and gas leases in with other types of traditional leases of surface estates.
- The statute is ambiguous.
The court’s answer
The court’s conclusion was that the Ohio real estate broker statute precludes a person who is not a licensed broker from bringing a cause of action to recover compensation allegedly owed for negotiating oil and gas leases. The plain language of the licensing statute does not exclude land professionals acquiring oil and gas leases from the definitions in the statute. The statute defines a “real estate broker” generally as a person who for a fee leases or negotiates for leasing of real estate or negotiates a transaction is calculated to result in the lease of real estate. To conduct those activities a real estate broker’s license is required.
The statute defines “real estate” as including “ … leaseholds …”.
The statute was not ambiguous, given that the state’s oil and gas lease recording statute recognizes those leases as creating an interest in real estate.
Is this “fair”?
Maybe not, but courts of law are charged with interpreting statutes, not deciding what they should say. “Fairness”, insofar as what a statute actually says, is the province of the legislature. That is unfortunate for Dundics and many other lease brokers now conducting business in Ohio, but the result is easy to understand.
Despite the fact that oil and gas land professionals have long worked in Ohio without real estate broker’s licenses and that Eric had paid Dundics before for similar transactions, payment was precluded by the statute.
A visit to the Ohio General Assembly? For sure. Re-arrangement of the relationship between brokers and their clients? No doubt. Inquiries and enforcement by the Ohio real estate commission? One would hope not.