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Seventh District Court of Appeals Affirms Lessee’s Ability to Unilaterally “Extend” Oil & Gas Lease On The Same Terms

04.02.15 written by

In Kenney vs. Chesapeake, the Seventh District Court of Appeals affirmed a holding by the Columbiana Court of Common Pleas finding an “extend or renew under similar terms a like lease” provision in an oil and gas lease grants the lessee two options: (i) to extend the lease on the same terms as the existing lease, or (ii) renegotiate for a renewal “like lease” on similar terms. The Court reasoned that “extend” and “renew” are distinct terms under Ohio law.

The lessor argued that the “extend or renew” provision required the oil and gas lease be renegotiated, arguing that the language “under similar terms a like lease” applied to “extend” as well as “renew” and therefore mandated renegotiation. The lessee countered that “under similar terms, alike lease” modified only the option to “renew,” which was irrelevant as the lessee exercised its option to “extend” the oil and gas lease. Lessee further argued that by exercising its option to “extend,” the terms of the oil and gas lease would remain identical to the original lease. 

The Seventh District affirmed the trial court’s holding following Eastham v. Chesapeake Appalachia, L.L.C., 754 F.3d 356 (6th Cir. 2014), which reviewed a similar lease provision and found in favor of the lessee, holding the provision contained no ambiguity and holding the “similar terms” language did not modify the option to “extend.” 

The lessor also argued the lessee improperly exercised its option to extend too early, by doing so prior to the expiration of the lease rather than upon expiration of the lease and within 60 days thereafter as provided in the lease. The Court in Kenney found that the “extend or renew” provision did not require the expiration of the lease as a condition precedent to the lessee’s ability to exercise the option, and the language created a deadline for exercising the option, not a date prior to which the option may not be exercised. The Court noted that the law generally disfavors a condition precedent and could identify no case where the option failed because it was exercised too early. 

Kenney, et al. vs. Chesapeake Appalachia, L.L.C., et al., 7th Dist. Monroe No. 14 CO 24, 2015-Ohio-1278 (Mar. 30, 2015)

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

If you have any questions concerning this client alert, please contact Attorney Gregory W. Watts at 330-497-0700.