The Ohio Supreme Court issued an opinion surrounding the lease and transfer of the subsurface oil and gas rights in a property that was subject to deed restrictions related to the conservation of the property as a green space. In Siltstone Resources, L.L.C. v. Ohio Pub. Works Comm., Slip Opinion No. 2022-Ohio-483, the Court sided with the Ohio Public Works Commission (the “OPWC”) in enforcing use and transfer restrictions in the conveyance of property purchased with a grant from the Clean Ohio Conservation Fund. The Clean Ohio Conservation Fund was created by the Ohio General Assembly to implement a constitutional amendment adopted by Ohio voters to conserve and revitalize green spaces in Ohio. The Guernsey County Community Development Corporation (the “CDC”) applied for and was approved for a grant to purchase property in Belmont County to create a “green corridor” connecting several natural areas.
The CDC’s deed for the property included two essential restrictions: 1) a “use restriction,” which provided in part that the “property will not be developed in any manner that conflicts with the use of the Premises as a green space,” and 2) a “transfer restriction,” which provided in part that the CDC “shall not voluntarily or involuntarily sell, assign, transfer, lease, exchange, convey or otherwise encumber the Property without the prior written consent of OPWC, which consent may be withheld in its sole and absolute discretion.”
Following the acquisition of the property, the CDC entered into an oil and gas lease covering the property and later sold a portion of the subsurface mineral rights to Siltstone Resources, L.L.C. without obtaining the prior written consent of OPWC. The CDC argued that the lease and sale of the property’s subsurface mineral rights did not affect the use of the property as a green space and therefore did not violate the deed’s use restriction. The CDC also argued that the subsurface mineral rights were severable from the property’s surface rights and the CDC was free to transfer the subsurface mineral rights without the prior written consent of OPWC.
The Court declined to adopt any generalized finding that the use restriction in the deed applies or does not apply to subsurface activities. Rather, the Court considered whether a transfer of interest in the property conflicts with the property’s agreed use and operation as a green space. The Court considered the principle that a restraint on the use and transferability of property may violate public policy and weighed it against the need to recognize and respect the rights of parties to contract freely. In doing so, the Court found that legal jurisprudence has generally favored “keeping the agreement of the parties stitched together when deed restrictions are unambiguous and reasonable.”
Here, the restraints contemplated in the deed were clearly stated and reasonable in light of the project purpose. The indefinite nature of the deed restrictions were consistent with the public purpose of land conservation and preservation, and the restraint on transferability was not absolute, because transfers were allowable with OPWC permission. Furthermore, the Court found that because the transfer of property was for a public purpose, while considering the conventional rules against restraints on alienation, it is appropriate to recognize the state’s interest in encouraging charitable giving and ensuring that the charitable purpose for giving will be observed and preserved over time.
The Court also considered the issue of remedies and determined that, although the legislation implementing the state constitutional amendment stipulated that OPWC policies must include grant repayment and liquidated damages, neither the amendment nor the statute limited OPWC to liquidated damages as the only remedy. In fact, the language of the deed restrictions left the door open to seeking equitable relief, which would be consistent with the predominant objective of long-term ownership and control, as contemplated in the Clean Ohio program.
Finally, the Court distinguished Siltstone from its opinion in Newbury Twp. Bd. of Trustees v. Lomak Petroleum, 62 Ohio St.3d 387, 583 N.E.2d 302 (1992), which held that the public policy of Ohio is to encourage oil and gas production in a manner consistent with the health, safety, and welfare of its citizens. The Court pointed out that the case in Newbury involved a local zoning ordinance regulating oil and gas exploration, which was found to be preempted by state law, whereas the present case did not involve preemption and the authorizing statute did not create or impede any particular rights of property owners.