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Court voids Tusten gas lease,property owner keeps the money

August 31, 2011

A Sullivan County Supreme Court judge has ruled that a gas-drilling lease in the Town of Tusten is void because restrictive covenants on the deed prohibit using the land for any kind of commercial activity.

The land in question is a 66-acre parcel bought by Jeff Klansky in March 2007. It is located in the Weiden Lake subdivision, which is a 2,500-acre private community, with 100 parcels and a 70-acre private lake. On a lease dated July 3, 2008, Klansky agreed to allow Cabot Oil and Gas Corporation to use his parcel to “explore for, drill for, produce and market oil, gas and other hydrocarbons” for 25 years.

The Weiden Lake Property Owners Association filed a lawsuit, saying the lease violated the restrictions on the deed, which are included in all the deeds of the subdivision, and which stipulate that property cannot be used for commercial purposes.

The relevant restriction reads, “No commercial fishing enterprise or fee-based boat launching facilities or any other commercial uses will be allowed on the premises.” Cabot argued that these restrictions related only to fishing or boat launching and did not relate to gas drilling.

Judge James Gilpatric, however, said, in a ruling on August 18, that Cabot’s take on the matter was wrong, and Cabot officials knew it was wrong when they signed the lease.

Gilpatric wrote, “Both Klansky and Cabot were on record of notice of the restrictive covenant against commercial uses on the property. In his deposition, Jeffrey Keim, regional land manager for Cabot responsible for approving leases, stated that Tom Calkins, Cabot’s broker, called him prior to entering into the lease, told him of the restrictive covenants and asked permission to proceed with the lease; he also stated that he understood commercial use to mean generally any commercial venture for profit.”

In another part of the case, Cabot asked to be released from the lease agreement under which it gave Klansky more than $99,000, because it has misread the law. The judge, in citing another case, said the relevant law “does not permit a mere misreading of the law by any party to cancel an agreement.”

Gilpatric further wrote, “Here the evidence clearly demonstrates that Cabot, a sophisticated business entity, made a calculated and knowing decision to enter into the lease, approve title and pay the signing bonus with full knowledge of the Protective Covenants and the Property Owner’s Association position. Therefore, it is not entitled to rescission of the lease under a mistake of law.” Therefore, if the ruling stands, Klansky gets to keep the approximately $99,000 lease-signing bonus.