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Court Holds Lessee Not Required to Negotiate with Lessors For Extension of Lease

By Ilya Batikov

On March 30, 2015, the Seventh District Court of Appeals decided Kenney v. Chesapeake Appalachia, L.L.C., 7th Dist. Columbiana No. 14CO24, 2015-Ohio-1278, a case involving the interpretation of an extension clause in an oil and gas lease. The lease provided that “[u]pon the expiration of this lease and within sixty (60) days thereinafter, Lessor grants Lessee an option to extend or renew under similar terms a like lease.” The lessors argued that the phrase “similar terms a like lease” applied to both the words “extend” and “renew” and therefore, that the lessee was required to negotiate with the lessors for an extension of the lease.

The court, following a decision by the Sixth Circuit Court of Appeals in Eastham v. Chesapeake Appalachia L.L.C., 754 F.3d 356 (6th Cir. 2014), which considered the same language, concluded that the phrase “under similar terms a like lease” did not modify the word “extend.” Therefore, the lessee was entitled to extend the lease under its original terms. The court also found that the lessee did not need to wait for the expiration of the lease before exercising its option.

Click here to read the full decision.

Tags: Ohio, Oil and Gas, Energy

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