Gas and Oil Leases and Beyond

Gas and Oil Leases and Beyond

James L. Goldsmith, Esq.

Does a real estate licensee's negotiating and drafting oil and gas leases constitute the unauthorized practice of law? As is so often the case, it depends!

The practice of law is not limited to appearing before or representing parties in court.

There is a wealth of authority for the proposition that the habitual drafting of legal instruments for hire constitutes the practice of law, . . . . According to the generally understood definition of the practice of law in this country, it embraces . . . conveyances, the preparation of legal instruments of all kind, and in general, all advice to clients, and all action taken for them in matters connected with the law.

Such a broad definition surely includes preparing leases, deeds, and agreements of sale. However, the Pennsylvania Supreme Court observed that drafting legal instruments is a "necessary concomitant" of the real estate business. It held that "a real estate broker is not prohibited from drawing a deed of conveyance or other appropriate instrument relating to property of which he or his associate have negotiated a sale or lease." This case, Childs v. Smeltzer, dates to 1934 and remains the law in Pennsylvania.

Are oil and gas leases appropriate documents for licensees to draft? For most licensees, drafting such leases is not "concomitant" to the real estate practice. There are no PAR Standard Form oil and gas leases; and drafting them involves legal considerations that extend well beyond the traditional commercial or residential leases. How many salespersons do you know who market oil and gas leases, or represent companies that are seeking to acquire such leases? The lack of familiarity with these transactions coupled with not having paired the parties originally will make it extremely difficult to argue that drafting oil and gas leases is a "necessary concomitant" of real estate.

Perhaps under the right circumstances, our members may be the procuring cause by having brought the owner and lessee together. It is still likely, however, that negotiating and drafting such leases will constitute the unauthorized practice of law. If you have no specialized training, and have no experience in drafting oil, gas or mineral leases, do not hold yourself out to the public as an expert in that area. Stay away!

This lesson is not restricted to oil and gas leases. Anytime brokers and salespeople step out of their common practice areas, they run the risk of incurring liability for errors and defending against charges of the unauthorized practice of law. Pennsylvania Courts see few unauthorized practice of law cases. Using standard forms and maintaining areas of practice well within the traditional concept of real estate minimizes the risk that Pennsylvania Courts will be asked to reevaluate the role and scope of what a real estate licensee can accomplish in a real estate transaction.

Mr. Goldsmith, is an attorney with Caldwell & Kearns, and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline. He may be reached at realcompliance.com.