Recently, in Peppertree Farms v. Thonen, 2020-Ohio-3043, Ohio’s Fifth Appellate District considered whether certain ancient royalty and fee oil and gas reservations terminated upon the grantor’s death. The Court held that they did because the grantors failed to include words of inheritance in their reservation clauses. As a result, each grantor’s reserved oil and gas interest did not transfer to his heirs and assigns.

Prior to enactment of Section 8510-1 of the General Code (now R.C. 5301.02) in 1925, words of inheritance were required to convey real property in perpetuity. Failure to include words of inheritance limited the duration of the estate conveyed to the grantee’s life (or, in the case of reservations, the grantor’s life). However, Ohio courts have applied this rule differently to “exceptions” and “reservations.” If the language used in the deed constituted an “exception,” words of inheritance were not required because the grantor was deemed to be retaining a portion of his former estate. If the language used in the deed constituted a “reservation,” words of inheritance were required because the grantor was deemed to be creating a new property interest.

In Peppertree, the Court held that each of the deeds created “reservations.” Notably, it even held that the fee oil and gas reservation was a “reservation.” In so holding, the Court relied, in part, on the Ohio Supreme Court’s decision in Chesapeake Exploration, L.L.C. v. Buell, 144 Ohio St.3d 490, to find that whenever minerals are severed from the surface, two new and separate estates are created – a surface estate and a mineral estate. Thus, although the grantor had title to the oil and gas at the time he executed the subject deed, his reservation was deemed to be a “reservation” because the severance created a new oil and gas estate.

The Peppertree decision appears to be in conflict with Ohio’s Seventh Appellate District’s decision in Headley v. Ackerman, 2017-Ohio-8030, which seems to analyze this issue under a different lens. We will update this blog post in the event of an appeal to the Ohio Supreme Court.