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Ohio Supreme Court Holds that Independent Landmen Must Have Real Estate Brokers Licenses

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.