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June 21, 2013

New York Appellate Court Rejects Broad Use of General Obligations Law §15-304

Operators have seen a major uptick in landowner notices under General Obligations Law (“GOL”) §15-304. In many cases, the landowner’s use was questionable and went well beyond the proper use of GOL §15-304. Until now though, there was little guidance from the courts on the scope of GOL §15-304 and when it could be properly invoked by a landowner to clear title relating to an oil and gas lease. As background, GOL §15-304 was enacted in 1984 to provide a mechanism for landowners to clear the title of their real property when an oil and gas lease has expired or has been terminated or forfeited. The statute sets forth a detailed procedure for a landowner to serve notice on the lessee and any assigns and the necessary response by the lessee or assign(s) and the proper timing in which to respond. The Fourth Department Appellate Division in New York has finally spoken as to GOL §15-304’s scope. The Court rejected a landowners attempt to use GOL §15-304 in a lease dispute concerning the continued validity of an oil and gas lease. Force majeure was not at issue. After dismissing the landowner’s contention that the lease’s arbitration clause was ambiguous due to its specific reference to GOL §15-304, it then rejected the landowner’s argument that GOL §15-304 is “a simple procedural means of cancelling the Lease.” According to the Court, “[t]he purpose of that provision is to allow landowners to clear the title of their real property when a lease has expired or has been terminated or forfeited, not to cancel an existing lease[.]” The Court, therefore, compelled arbitration to determine whether the lease was still valid at the time the GOL §15-304 notice was filed. The take away is that GOL §15-304 is not a catchall statute allowing landowners across New York to cancel a lease that has not otherwise expired. GOL §15-304 is properly used only in limited circumstances. Operators served with GOL §15-304 notices, however, should continue to take them seriously until further guidance is provided by the New York courts, particularly those in the Third Department which cover the areas thought to be productive for Marcellus shale.

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