On Feb. 17, 2017, the 7th District Court of Appeals upheld a Mahoning County Court of Common Pleas decision that ruled landmen must be licensed as real estate brokers to be compensated for negotiating oil and gas leases.

In Dundics v. Eric Petroleum Corp., 2017-Ohio-640, the plaintiffs were landmen who had negotiated leases on behalf of the defendant operator. The landmen were promised $10 per leased acre and a 1 percent working interest in any wells placed on the leased acreage. In the landmen’s suit for failure of payment, the operator successfully moved to dismiss the case on the basis that the landmen were not entitled to compensation since they were not licensed real estate brokers. The operator pointed to Ohio Revised Code Section 4735.21 in support of its motion to dismiss, which states in part:

“[n]o real estate salesperson … shall collect any money in connection with any real estate or foreign real estate brokerage transaction, whether as a commission, deposit, payment, rental, or otherwise, except in the name of and with the consent of the licensed real estate broker or licensed foreign real estate dealer under whom the salesperson is licensed at the time the sales person earned the commission.”

The Dundics court applied the Ohio Supreme Court’s analysis in Chesapeake Exploration, L.L.C. v. Buell, 144 Ohio St.3d 490, which recognized that an oil and gas lease affects both the oil and gas rights as well as the surface rights. Accordingly, the Dundics Court held that an oil and gas lease pertains to real estate, and thus R.C. 4735.21 applies to landmen that negotiate oil and gas leases on behalf of operators.

The Court did not address whether the nature of the compensation received would affect the applicability of R.C. 4735.21. The plaintiffs in Dundics were promised a commission, however, landmen are often compensated on a day-rate basis. This decision has important implications for an operator’s ability work through brokers that contract landmen to negotiation oil and gas leases.

The full opinion can be found here.