We recently received a question regarding our earlier post Life Estates: Oil and Gas Law Implications, wondering: “What happens to a mineral lease which the life tenant entered into and received renewal payments each year that was never ratified by the remaindermen upon the termination of the life estate and complete possession is realized by the remaindermen?”

The Noble County, Ohio Court of Common Pleas recently addressed this issue in Dickson v. Chesapeake AEC Acquisition, LLC, Case No. 212-0051. In Dickson, a life tenant entered into an oil and gas lease with an exploration company. Just before the original term of the lease expired, the lessee’s successor sent the life tenant a check, as was required to extend the primary term of the lease. The plaintiffs (the remaindermen of the life estate) returned the check and notified the lessee that the lessor owned only a life estate in the property, that the plaintiffs owned the remainder interest in the property, and that the life tenant had no right to lease mineral rights. When the dispute could not be resolved, the remaindermen sued the lessee. The remaindermen then moved for summary judgment, asking the court to declare the lease between the life tenant and the exploration company void.

As we noted in our last post on this topic, at least two Ohio appellate courts have previously held that a life tenant may not unilaterally enter into an oil and gas lease. See Fourth & Central Trust Co. v. Woolley, 31 Ohio App. 259, 262, 165 N.E. 742 (1st Dist. 1928) (“[A] tenant for life has no right to operate for oil or gas on the premises in which such estate is held, or to make an oil or gas lease therein when operations for oil or gas were not commenced before the life estate accrued.” (Emphasis added).), citing Kenton Gas & Elec. Co. v. Dorney, 9 Ohio C.D. 604, 1898 WL 1401 (Ohio Cir. 1898).

After summarizing the general rules applicable to oil and gas leases when life estates are involved, including those set forth in the Woolley decision, the Dickson court held that though commencing exploration or development under the lease would constitute waste for which the life tenant could be held liable to the remaindermen, a lease by the life tenant is not void or invalid. Rather, such a lease simply grants the lessee the same rights in the property that the life tenant possesses — the right to possession and use of the property during the life of the life tenant without committing waste.

Thus, “the execution of a lease … by the life tenant … merely effects a transfer to the lessee … of the veto power of the grantor on development by the [remaindermen].” Dickson, Case No. 212-0051, Judgment Entry at 4 (Feb. 6, 2013), quoting Quadrant Exploration, Inc. v. Estate of Greenwood, 4th Dist. No. 82 X 29, 1983 Ohio App. LEXIS 14550, *5 (Aug. 15, 1983). The court noted that its decision is consistent with cases decided in Texas and Mississippi, as well a well-known treatise on oil and gas law.

Under Dickson, if a life tenant enters into an oil and gas lease, that act, by itself, is not improper, and it does not constitute waste. However, the Dickson decision also makes clear that any activity to access or produce the minerals without the consent of the remaindermen would be improper. For a lessee to drill for oil and gas on a parcel encumbered by a life estate, the lessee must have the consent of the life tenant (which would authorize lessee’s possession of the property) and the remaindermen (which would authorize production of the minerals).

So, what happens if a lessee obtains a life tenant’s consent but fails to obtain the consent of the remaindermen? The Dickson decision suggests that a life tenant’s lease that was never ratified by the remaindermen ends upon the termination of the life estate. Because a lessee holds only the rights that the life tenant possesses, it follows that in the absence of the remaindermen’s ratification of or agreement to the lease, the lessee’s rights in the property expire upon expiration of the life estate.

The Dickson case involved facts that were relatively simple. But this case could have been much more difficult. How would the Dickson court have ruled if the lessee had sought to use the property to conduct only seismic testing or to lay a temporary water line across the property to serve a nearby drilling operation? Would these activities be a permissible use and possession of the property that the life tenant could authorize regardless of the consent of the remaindermen? Courts are likely to face these and other questions with increasing frequency as mineral exploration and development in Ohio increases.