Current Legal Cases on Mineral Leases and Landowner Information

Aukema, et al. vs. Chesapeake, et al.

Opinion from Joe Heath, Esq

An important federal court decision was handed down on November 15, 2011, in a Binghamton case, that impacts and essentially ends about 25 % of all gas leases.  The purpose of this posting is to explain this decision, to identify which lease holders can benefit from it, and to give instructions as to how to take actions to end those leases which are covered by this decision.  You must take actions to officially have your lease cancelled.

In a case entitled Aukema, et al. vs. Chesapeake, et al. (Docket No. 3:11-cv-00489), Judge David Hurd ruled against Chesapeake’s claim that it could indefinitely extend leases beyond their primary terms, due to the state’s regulatory delays inherent in its review of the dangers of fracking.  Chesapeake had claimed that force majeure entitled it to these extensions.  In this carefully reasoned decision, Chesapeake’s claim was rejected: “Accordingly, force majeure does not extend the leases.”  All of the leases involved were declared “expired by their terms.”

Based upon this ruling, Fleased is eager to assist all lease holders whose leases’ primary terms have expired, secure official cancellation of their leases.

The first step is to review your lease and determine whether or not it has an automatic extension paragraph.  To find this–most leases begin with a long paragraph entitled: “LEASING CLAUSE”, which lists all the activities the gas companies obtained with the lease, such as drilling gas well, taking water, storage of gas, etc.  This is usually followed by a “DESCRIPTION” section, which merely defines the dimensions of your property that was leased.

Next comes the “LEASE TERM” paragraph, which normally is for a 5 or 10 year primary term, and which may even contain a specific date when this primary term ends, unless a well has been drilled or similar activities have taken place by the company on your land.

Unfortunately, in about 2/3 of the leases, this primary term and the termination date are very misleading, due to the next paragraph, which is entitled:  “EXTENSION OF TERM OPTION”, in which the companies reserve the right to extend the lease for another 5 or 10 years, at their sole option, with a specified payment.

If this “extension” paragraph was crossed off in your lease, then you are in the position to take advantage of this new court ruling and take action to end your lease, as long as the initial, primary term has expired.   If you have any questions about the contents of your lease, please scan a copy and send it to Fleased and we will have it reviewed and answer your questions.

The action you need to take is to send a notice letter, pursuant to New York’s General Obligations Law § 15-304 (2), to the company holding your lease, and to all other companies or parties to which any portion of your lease has been assigned.   You will not have been notified of any such assignments and so, you will need to check the records in your county clerk’s office to discover all such assignments, as your notice letters must be sent to these assignees as well.

Forms for these notice letters are found on this Fleased web site, as well as forms for the Affidavit of Service, which must also be filled out and signed before a Notary Public.   If the company and the assignees fail to respond to these notice letters within 30 days, you can then file copies of the notice letters and affidavits of service in the clerks office, and this filing officially ends your lease.

Opinion from Mary Jo Long, Esq.

I  read Judge Hurd’s decision in Aukema et al. v. Chesapeake and Statoil.  A  no arbitration clause does NOT affect the Aukema decision.   The  ruling specifically applies to the named plaintiffs and the decision declares  those specific leases expired.  Because this decision establishes legal  precedent, the reasoning of Judge Hurd will apply far more than just the named  plaintiffs.  It applies in all of New York State unless or until it is  overruled or subsequently changed through legislation.
Judge  Hurd says that the Directive from Governor Patterson, i.e. the so-called  Moratorium, is not a factor that would trigger force majeure.  This ruling  applies generally to other leases, not just the named plaintiffs.  It may  require additional steps for other lessors who want their leases to be declared  expired, but the ruling is available to show that force majeure does not apply  to the Directive from Governor Patterson.  So, it DOES apply to some other  lease holders.
Judge  Hurd also dealt with Chesapeake’s argument that the leases were extended because  of payment.  Here the details vary from some of the leases I have  seen.  In other words, that part of the decision does not necessarily apply  to EVERY person who leased.  For example, I have seen some leases that say  the primary term can be extended by specific items which are separated by “or”.  For example, a 5 year primary term “and shall continue beyond the  primary term as to the entirety of the Leasehold if any of the following is  satisfied: . . . or  (v) prescribed payments are made; . . . .Lessee has  the option to extend the primary term of this Lease for one additional term of  five (5) years from the expiration of the primary term of this Lease; said  extension to be under the same terms and conditions as contained in this  Lease.”  It goes on to say the lessee has to pay an amount equal to the  initial consideration given for the initial lease on or before the primary term  would expire.  Thus, if someone was paid $25/acre for 100 acres and  received $2,500 on or before the primary term expired, then the gas company gets  an extra 5 years.
So,  if someone is trying to have their lease declared expired because of payments  made to extend the lease, it would be important to read the lease and learn  facts to determine if Judge Hurd’s ruling would apply.
I  hope this is helpful.
Mary  Jo Long, Esq.
P.O.  Box 465
Afton,  NY  13730

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