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Do Not Use the Recording of Surrender Documents from Oil and Natural Gas Lease Act

By Paul R. Yagelski, Esquire

Should you use the Recording of Surrender Documents from Oil and Natural Gas Lease Act to have an oil and gas company record a release or surrender of lease?  No!

You believe that your oil and gas lease has terminated, expired or been cancelled.  Simply put, you believe that your oil and gas lease is gone; it is no longer in effect.  The oil and gas company, however, has not acknowledged this.  In particular, it has not filed anything in the recorder of deeds office in the county where your oil and gas is located to give notice to the world that it no longer has an oil and gas lease covering your property.  What can you do?

There are a number of options.  One, you can send the oil and gas company a notice of expiration/termination of the lease informing the oil and gas company that the lease has expired and if appropriate, terminated and request that the oil and gas company file a release or surrender document with the county’s recorder’s office.  Two, you can file an action for declaratory judgment and/or quiet title to have a court declare that the lease has expired and if appropriate, terminated.  Three, you can utilize the Recording of Surrender Documents from Oil and Natural Gas Lease Act (“Act”), 58 P.S. § 901, et seq., but should you use the Act?  The answer should be a resounding “NO”!

The Act is badly worded for use by a landowner/royalty owner.  The Act could result in an admission by the landowner/royalty owner that in fact the lease has not expired or been terminated.  The Act as written could prejudice the landowner/royalty owner and end in a court determination that the oil and gas lease that the landowner/royalty owner sought to have declared expired or terminated is declared to be in effect.  How is this so?

The Act requires that the lessee under an oil and gas lease deliver to the lessor a surrender document in a certain recordable form not more than 30 days after the termination, expiration, or cancellation of an oil and natural gas lease (“lease”).

If the lessee fails to timely provide a surrender document, the Act requires that the lessor may serve a notice on the lessee stating that: (i) the lease will be terminated, expired or cancelled according to its terms, including the date of the termination, expiration or cancellation (i.e., on some future date); (ii) the lessee has a duty to provide a surrender document under section 3 of the Act; (iii) the lessor has failed to receive a timely surrender document from the lessee; and (iv) if the surrender document is not received by the date of termination, expiration or cancellation, the lessor has a right to record an affidavit of termination, expiration or cancellation of the lease in the office of the recorder of deeds for the county in which the land is situated.

If, after receiving a notice of termination, expiration or cancellation, the lessee disputes that the oil or natural gas lease will be terminated, expired or cancelled on the date stated in the notice, the lessee must, not more than 30 days after receipt of notice, deliver a written challenge to the lessor.

You will note that the Act in two different places states that the lease will be terminated, expired or cancelled on the date stated in the notice.  If the lease has in fact terminated, expired or been cancelled, why state that the lease will be terminated, expired or cancelled upon a certain date?  By putting in the notice that the lease will be terminated, expired or cancelled, the lessor is in effect saying, contrary to the belief of the lessor, that the lease has not terminated, expired or been cancelled.  By stating in the notice that the oil or natural gas lease will be terminated, expired or cancelled, the lessor is saying to the lessee that the oil or natural gas lease is still in effect.  If an action for declaratory judgment and/or quiet title is later filed, the lessee could then argue that the lessor by use of the words “will be” has admitted that the lease is still in effect.

The Act is badly worded.  The Act starts out with the correct supposition that a lease has terminated, expired or been cancelled and as such, the oil and gas company has a duty to file a surrender document not more than 30 days after the termination, expiration or cancellation of the lease in  order to clear the lessor’s title.  Despite this, the Act requires the lessor to send a notice saying that the lease will be terminated, expired or cancelled.  The Act should read that the notice should state that the lease is terminated, expired or cancelled according to its terms. This would be in compliance with the belief of the lessor as to the status of the oil and natural gas lease.  If the lessee then wants to dispute this, it could do so by delivering a written challenge to the lessor’s position in accordance with the Act.

The way the Act is written now, the notice sent by the lessor to the lessee could be considered an admission by the lessor that in fact the lease has not terminated, expired or been cancelled.  Why would a lessor want to use the Act and send a notice to the lessee that says that the lease will be terminated, expired or cancelled when in fact the lessor knows that the lease has terminated, expired or been cancelled?  The use of the Act is not mandatory.  If the Act is not mandatory, why use it when it misrepresents the lessor’s position that the lease has terminated, expired or been cancelled?

From the wording of the Act, it appears that the intention of the Act was to provide a basis for a lessor to have a release or surrender document filed by an oil and gas company with the county recorder of deeds office when the lessee fails to do so.  Despite this, the Act fails to accomplish its intended purpose.  The simple solution is that the Act should be amended to remove the words “will be” and replace it with the word “is.”  The Act should require that the notice shall contain language stating that the lease is terminated, expired or cancelled.  This way, the lessor can state exactly what its position is in the notice instead of using language that directly contradicts what the lessor believes to be the fact.  The lessee can then dispute the lessor’s position in accordance with the provisions of the Act.

Bottom line:  This writer will not use the Act because it is so poorly worded.  If I have a situation where my client’s lease has terminated, expired or been cancelled, I will send a notice informing the lessee of the termination, expiration, or cancellation of the lease and request that the appropriate release or surrender document be filed in the county recorder of deeds office.  If this is not done, an action for declaratory judgment and/or quiet title would then be filed.

If you believe that your oil and gas lease has terminated, expired or been cancelled, we can assist you with sending notice. Contact us online or call (412) 338-1124.

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