In a Case of First Impression, the Wyoming Supreme Court Holds that Life Estate Holders with Executive Rights May Execute Leases that Extend Beyond the Life Estate

On October 26, 2022, the Wyoming Supreme Court issued an amended opinion clarifying, and arguably vastly expanding, the rights of life estate holders in the context of leaseholds. North Silo Resources, L.L.C. v. Deselms, 2022 WY 116A, 518 P.3d 1074 (Wyo. 2022), stems from a complicated web of contracts for deed, warranty deeds, and quitclaim deeds dating back to 1987 for a property located in Laramie County, Wyoming (the “Property”).  At the heart of the dispute was a lease to extract mineral resources from the Property.  The novel issue of law presented to the Court was whether the Lessors, who held a life estate in the Property’s minerals and reserved executive rights, may enter into leases with terms extending beyond the expiration of their life estate.  

The Supreme Court began its analysis by acknowledging that other courts around the country have determined that reserved executive rights can empower a life estate holder to execute leases beyond the life estate term. Id. at 1087 (citing RLM Petroleum Corp. v. Emmerich, 896 P.2d 531, 535 (Okla. 1995); Steger v. Muenster Drilling Co., 134 S.W.3d 359, 373 (Tex. Ct. App. – Fort Worth 2003, review denied); Glass v. Skelly Oil Co., 469 S.W.2d 237, 240–41 (Tex. Ct. App. – El Paso 1971, writ ref’d n.r.e.); Amarillo Oil Co. v. McBride, 67 S.W.2d 1098, 1100–01 (Tex. Comm’n App. 1934, judgm’t adopted). Apparently, these courts reasoned that “[W]hile typically a lease executed by a term interest holder would not endure beyond the interest holder’s estate, if a life tenant is granted the power to lease, but cannot bind future interests, there is very little utility to the power because of the natural reluctance of any lessee to accept a lease which might be terminated by the death of the lessor.”  N. Silo Res., LLC, 518 P.3d at 1087 (internal quotations omitted).

However, the Wyoming Supreme Court held that whether the reservation of executive rights allows a life estate holder to execute leases that extend beyond his or her lifetime ultimately turns on the language of the deed.  In the case before the Court, the Lessors’ executive rights reservation stated that they “shall, during their lives, have the exclusive right and privilege of making, executing and delivering leases of the land for the extraction or production of minerals. On termination of this reservation, the interest reserved shall be owned by Grantees.” Id. at 1089.  The Court found that:

This reservation of rights limits the time period during which the [Lessors] have the right of “making, executing and delivering leases” to their lifetimes. It does not, however, limit the nature of the leases that the [Lessors] can make—it does not limit the length of the leases the [Lessors] could enter to their lifetimes. The [Lessors] retained the power to execute oil and gas leases that extended beyond their respective lifetimes. . . . Accordingly, the lease to [Lessee] remains in effect according to its terms when the [Lessors’] life estate terminates.

Id.

Practitioners in Wyoming and beyond should be aware of the language employed in the Lessors’ executive rights reservation, the Court’s interpretation thereof, and the far-reaching effects it may have on life estate holders’ ability to encumber property with long-term leases.