Oil and Gas Professionals Must Now Obtain Real Estate Licensure in Ohio

Continued from my earlier article concerning this topic.

Last week the Ohio Supreme Court issued a ruling that those Ohio professionals that help obtain oil and gas leases on behalf of clients must obtain a license licensure as a real estate broker or salesperson. Prior to the Supreme Court’s decision, the federal districts in Ohio were split, with the southern district ruling that licensure is not required and the northern ruling it is. The decision finally settles whether oil and gas leases are excluded from the definition of real estate set forth in Ohio real estate license law.

Ohio license law defines “real estate” as any leaseholds as well as and every interest or estate in land situated in this state, whether corporeal or incorporeal, whether freehold or nonfreehold, and the improvements on the land, but does not include cemetery interment rights. Those that sell, exchange, etc. in “real estate” in Ohio must be licensed as a real estate salesperson or broker. Because the definition does not explicitly exempt oil and gas leases, the Court ruled that those that deal in them must also be licensed.

The case started when Thomas Dundics, a landman, entered into an arrangement with Eric Petroleum to find property owners willing to grant to Eric Petroleum oil and gas leases. If a lease was secured, Eric Petroleum agreed to pay Mr. Dundics a percentage of the proceeds from wells placed on the owner’s property. When Eric Petroleum refused to pay for leases that Mr. Dundics procured, Mr. Dundics filed suit against Eric Petroleum. In response, Eric Petroleum argued it should not be required to pay because Mr. Dundics needed licensure as a real estate broker in order to lawfully procure leases for Eric Petroleum.

In its opposition to Eric Petroleum’s assertion that licensure was required, Mr. Dundics argued that landmen, those that secure oil and gas leases on behalf of either oil and gas companies or landowner clients, have a special skill set that does not necessitate licensure. He is not procuring a traditional type of surface lease (i.e. residential homes or apartments) rather is procuring leases for mineral rights (below the surface). He argued these professionals have worked for decades in Ohio without any regulation or consequence. He argued that requiring landmen to obtain real estate licensure would necessitate coursework and testing that is not applicable to the work they do on behalf of their clients. For example, the skills needed to negotiate oil and gas leases are different from those required to list and sell residential real estate.

Notwithstanding, the Court reasoned that because the license law statute does not specifically except those dealing in oil and gas leases, these professionals must obtain licensure. Ohio license law permits the Commission to impose civil penalties of up to $1,000.00 per day for unlicensed activity. Going forward, if landmen practice without a license, they risk not getting paid for their work and civil fines from the Real Estate Commission.