On December 15, 2015, the Supreme Court of Ohio heard oral arguments in two consolidated cases: Hupp et al. v. Beck Energy and Claugus Family Farm v. Seventh District Court of Appeals. In Hupp, the plaintiffs leased property in Monroe County under form oil and gas leases with Beck Energy Corporation containing a fairly typical habendum clause stating that the leases will continue “for a term of ten years” and so much longer thereafter “as oil and gas or their constituents are produced or are capable of being produced” “in paying quantities, in the judgment of the Lessee, or as the premises shall be operated by the Lessee in the search for oil or gas.” The leases also contained a delay rental clause providing for lease termination unless the lessee paid a specified delay rental. The delay rental clause did not, however, expressly state that it applies only during the lease’s primary term.
The lessors claimed that the leases were void as against public policy because the habendum clause language created “no-term” or “perpetual” leases that could go on indefinitely at the option of the lessee. The lessors also argued that the leases allowed the lessee to hold the property indefinitely and without production through the payment of minimal delay rentals or by the lessee’s mere assertion that the land was capable of producing oil and gas. The trial court agreed with the lessors and granted summary judgment in their favor. The trial court also permitted the lessors to seek class action certification to void other leases based on the same form.
Beck appealed and the Seventh District Court of Appeals reversed the trial court’s decision on the merits based upon long-standing principles of Ohio law, but upheld the trial court’s decision regarding class certification. The Seventh District also tolled all of the leases as of 2012. In Claugus Family Farm, lessors who were not notified of the class action challenged the Seventh District’s tolling order, contending that the tolling of the Beck leases covering their property prevented them from entering into a lease with another operator that would have paid a bonus in excess of $400,000.
You can watch the oral arguments in the Hupp and Claugus Family Farm cases at the website of the Ohio Channel.