On Wednesday, December 19, 2018, Governor Kasich signed SB 263 into law, which amends O.R.C. §4735 to specifically exclude oil and gas land professionals (landmen) from having to be a licensed real estate broker to negotiate oil and gas leases in Ohio. Following the Ohio Supreme Court’s decision in Dundics v. Eric Petroleum Corporation, Slip Opinion No. 2018-Ohio-3826 (September 25, 2018), independent oil and gas landmen faced civil and criminal penalties if they continued to negotiate oil and gas leases without first acquiring a real estate broker’s license. With the passing of SB 263, which goes into effect on March 19, 2019, independent landmen may continue negotiating oil and gas leases without a real estate broker’s license provided they follow the new disclosure requirements set forth in the amendment.
The newly passed legislation specifically exempts landmen from acquiring a real estate license if the transaction involves negotiating an oil and gas lease or pipeline easement. However, the landman must first register annually with the superintendent of real estate and pay a $100 registration fee. Additionally, the landman must provide the superintendent with evidence that the landman is in good standing in a national, state, or local professional organization that has developed ethical performance standards for oil and gas land professionals. When negotiating an oil and gas lease, the landman must now provide the landowner with a disclosure form that discloses their registration information and notifies the landowner that the landman is not a licensed real estate broker. The exemption does not apply to fee simple absolute transactions involving oil and gas rights, which still require the landman to be a licensed real estate broker.
The Ohio Supreme Court has ruled in Dundics v. Eric Petroleum Corporation, Slip Opinion No. 2018-Ohio-3826 (September 25, 2018), that independent landmen (third parties who negotiate oil and gas leases on behalf of E&P companies) must be licensed real estate brokers. In Dundics, an independent landman, who was hired to obtain oil and gas leases for an E&P company in exchange for compensation and a future royalty interest in the leases, sued the E&P company to recover payment on several leases. However, the company moved to dismiss the case on the basis that the landman was not a licensed real estate broker and could not bring a cause of action to recover payment under O.R.C. § 4735.21.
In affirming the Seventh Appellate District’s decision to dismiss the landman’s claims, the Court concluded that the broad definition of “real estate” in O.R.C. § 4735.01(B) applies to oil and gas leases and that an independent landman is a “real estate broker” required to have a license under O.R.C. § 4735.02. The statute defines a “real estate broker” as including “any person, partnership, association, limited liability company, limited liability partnership, or corporation… who for another… and who for a fee, commission, or other valuable consideration… does any of the following…,” which specifically includes the procuring of prospects or the negotiation of leases. See O.R.C. § 4734.01(A)(7). Although there are several exceptions from the definition of “real estate broker,” including one for attorneys, the Court found that the statute is unambiguous and there is no exception for independent landmen.
The Court did not address whether the decision applies to in-house landmen who directly negotiate oil and gas leases on behalf of their employer. Although there is no such explicit exception in the statute, it is arguable that the definition of “real estate broker” itself exempts in-house landmen. Because the definition requires a person to be performing certain activities “for another” and an in-house landman is negotiating for his or her own company, it is possible that they may not be considered real estate brokers for purposes of the statute. The Court also did not discuss the potential liability of an unlicensed landman, who now could be exposed to both monetary and criminal penalties for practicing without a license. This may cause those in the industry to rethink their leasing practices.
The only way this decision could be overturned is if the Ohio General Assembly creates a statutory exception for landmen within the real estate licensure statute.