On December 30, 2015, Senate Bill No. 257 was introduced before the Ohio General Assembly that would, if enacted, have a substantial effect on the determination of good title to interests in real property, including oil and gas interests.
The bill, introduced by Senators Bill Seitz and Michael Skindell and co-sponsored by Senator John Eklund, would amend Ohio Revised Code (“ORC”) § 5301.07, a curative statute entitled “Validating certain deeds – limitations,” by expanding the scope of what defects may be cured, creating a presumption of the validity of recorded instruments, and reducing the time period for curing the covered defects. The current version of the statute provides that, after 21 years, a defect in a recorded instrument conveying an interest in real estate can be cured if such defect was due to:
- the instrument not being properly witnessed;
- the instrument not containing a certificate of acknowledgement; or
- the certificate of acknowledgment being defective in any respect.
Currently, any person claiming adversely to an instrument with such a defect, if not already barred by limitation or otherwise, may, at any time within 21 years after the time of recording of the instrument, bring proceedings to contest the effect of the instrument.
Senate Bill No. 257 would profoundly “liberalize” ORC § 5301.07 by creating rebuttable presumptions that any recorded real property instrument signed and acknowledged by a person with an interest in real property (a) conveys, encumbers, or otherwise affects the interest of the person who signed the instrument and (b) is valid, enforceable, and effective as if in all respects the instrument was legally made, executed, acknowledged, and recorded. These presumptions may be rebutted only by clear and convincing evidence of fraud, undue influence, duress, forgery, incompetency, or incapacity, an extremely high burden of proof imposed on a party contesting the validity of the instrument. In addition, any recorded real property instrument subject to challenge due to a defect in its making, execution, or acknowledgment will be deemed effective and will provide constructive notice of the instrument to third parties, notwithstanding the defect.
Of equal, if not greater, significance is that Senate Bill No. 257 would, if enacted, both (a) make the presumption of validity rebuttable for the atypically short period of four years, as opposed to the period of 21 years that customarily constitutes the statute of limitations for real property matters, and (b) apply to any defects in the making, execution, or acknowledgment of a recorded real property instrument, listing the three defects identified in the current version of ORC § 5301.07, together with a defect arising from the omission from an instrument’s granting clause of the name of the person with the interest in the real property (but who executed the instrument without limitation) merely as examples of the type of defect covered by revised ORC § 5301.07. This will arguably expand the potential causes of a curable defect to almost anything and is certain to provoke litigation as to the scope of the revised statute.
Bottom Line for Oil + Gas Companies
While a curative statute amended in accordance with Senate Bill No. 257 would affect all real property instruments to which it applies, its practical effect would be most dramatic as it relates to oil and gas leases and related instruments, including assignments and subleases. In Ohio, at least, mineral interests are typically excluded from title insurance coverage, and defects in instruments relating to such interests do not, therefore, enjoy potential “resolution” as a result of title insurance coverage. One might nevertheless conclude that title insurance companies, as well as oil and gas companies and those who prepare the drilling opinions on which they continue to rely, including abstracters and law firms, will enthusiastically support Senate Bill No. 257. Opposition will most likely come from a handful of “purists” disinclined to create a statutory mechanism to disregard potentially significant defects in legal documents relating to real property interests that have gone unchallenged for the unusually short period of four years, as opposed to the longer period of 21 years typically applied in dealing with real property interests.