To help avoid litigation concerning your oil and gas rights, it is important that your oil and gas lease is executed properly. Below are two instances where an oil and gas lease was improperly executed. One example of a common mistake made is when a married individual solely executes an oil and gas lease. A second, less common example, concerns the execution of an oil and gas lease by a person acting pursuant to a power of attorney.
Example 1: A married individual who solely executes an oil and gas lease
One of the most common mistakes occurs when a married person who owns 100 percent of the surface estate and the oil and gas estate, in fee simple, executes a lease without his or her spouse.
An example of this would be where John Doe, married to Jane Doe, solely acquires property and subsequently enters into an oil and gas lease with the following language:
John Doe, a married man, dealing in his sole and separate property, does make and execute an Oil and Gas Lease in favor of X Energy Company.
The issue with the language above is that John Doe is married to Jane Doe who, in turn, has a dower interest in and to the property being leased to X Energy Company. Dower (recognized in only a small number of states) is a one-third life estate interest that a spouse has in the real property, generally only able to be released or terminated by death, divorce or the joining in the conveyance. In the example above, Jane Doe has a dower interest in the property and therefore must also join in the execution of the oil and gas lease to X Energy Company.
An easy way to correct this error is by executing and filing of record, in the county recorder’s office in which the property is situated, a Ratification Agreement with present words of grant and conveyance, executed by Jane Doe, which ratifies, adopts and confirms the oil and gas lease to X Energy Company.
Example 2: Execution of an oil and gas lease by an individual acting on behalf of another individual under power of attorney
In this example, Jane Doe is vested with all of the property. On July 1, 2010, Jane Doe executes a Power of Attorney and appoints John Doe to be her true and lawful attorney-in-fact with the power to execute oil and gas leases on her behalf. However, the Power of Attorney, whereby Jane Doe appoints John Doe to be her lawful attorney-in-fact, is not submitted to the county recorder’s office and recorded until March 8, 2015.
John Doe, in his capacity as attorney-in-fact for Jane Doe, executes an Oil and Gas Lease with Y Energy Company on January 1, 2014, which is recorded on February 10, 2014.
It is important to note the recording dates of the Power of Attorney and Oil and Gas Lease. Pursuant to O.R.C. §1337.04, a power of attorney for the conveyance of a lease of an interest in real property must be recorded in the office of the county recorder of the county in which such property is situated, previous to the recording of the lease by virtue of such power of attorney.
Based on the fact pattern above, the Power of Attorney, dated July 1, 2010, and recorded March 8, 2015, was recorded after the Oil and Gas Lease executed by John Doe in his capacity as attorney-in-fact for Jane Doe, and recorded on February 10, 2014. Therefore, based on O.R.C. §1337.04, the oil and gas lease executed by John Doe, as attorney-in-fact for Jane Doe, was improper in that it was executed before the record date of the Power of Attorney.
A good way to rectify this problem is by executing and filing for record in the county recorder’s office in which the property is situated a Lease Amendment and Ratification Agreement, with words of present grant and conveyance, executed on behalf of Jane Doe, by her Attorney-in-Fact, John Doe, and which ratifies, adopts and confirms the oil and gas lease unto Y Energy Company, its successors and assigns.
The good news about improperly executed oil and gas leases is that they can normally be fixed without having to jump through too many hurdles. It is important, however, that you consult with your real estate/oil and gas attorney if you suspect that there will be any issues regarding the proper execution of your oil and gas lease.