Ask questions, get expert advice when asked to sign lease/easement
Farm landowners are increasingly being approached by companies seeking easements or leases for new projects. Each case is unique, but several crucial areas need careful examination before signing any agreement. It’s not just about the financial offer. Kurt Swenson, a Beulah, N.D., farmer and rancher, emphasizes the importance of asking plenty of questions when considering an easement or lease proposal.
Swenson has spent hundreds of hours reviewing and rewriting the lease proposed by Summit Carbon Solutions. With a civil engineering degree from North Dakota State University, Swenson strongly advises working with a lawyer knowledgeable in contract law when reviewing documents that impact farm or ranch land. “In situations like this, a lawyer knowledgeable in contract law and private property rights is worth their weight in gold,” he said.
Swenson’s career allowed him to focus a lot on legal contracts which he checks for his business. In reviewing the Summit document, “Summit came to us to store carbon dioxide under our land, about a mile under the surface,” he said.
Summit filed with the North Dakota Industrial Commission for a permit to inject CO2 into three different sites, each approximately 30,000 acres, all in the Beulah area. This would be the storage area for the CO2 Summit proposes to sequester from ethanol plants in Iowa, Nebraska, South Dakota, Minnesota and North Dakota.
About 280 acres of Swenson’s land in Mercer and Oliver counties are in that storage area. In sharing information about his dealings, he said, “Their initial leases gave them the absolute right to put whatever they wanted on our land and put it anywhere they wanted. So it could have been a pipeline, it could have been a well. It could have been a compressor station. And so that was one of the biggest things that we focused on and were concerned about.”
COURT CASE
Swenson is part of the Northwest Landowners Association who filed a suit in North Dakota District Court and is under appeal with the North Dakota Supreme Court, seeking to overturn legislative changes which could force some North Dakota landowners to accept the deposition of carbon dioxide underneath their property without their permission.
The actual amount of money will be different for every lease but the wording and knowing who is responsible are big areas to review.
There were a number of things that needed to be researched and it took a lot of time.
As he worked through the process, Swenson said, “I started questioning ‘What is the real purpose of what they are doing?’ I suggest, whether it’s an easement or a lease, make sure you understand what it can be used for and that you are comfortable with the purpose and what limitations are put on the developer in the lease.”
“Summit’s lease was pretty broad to begin with,” Swenson said. “We really worked to try to narrow it down so that we know the only thing they are putting in our ground is carbon dioxide. And it’s not going to be other substances.”
A lot of people sign pipeline leases — it might be for a crude oil pipeline. But the wording may give the company the right to put other things in there as well. Make sure you definitely know what the easement or the lease is limiting the use of your land for.
LANDOWNER PROTECTION
Another wide area of concern was indemnification. “Indemnification focuses on if there is an accident or an issue, what does the developer protect you from legally? And will they defend you in court if something happens, due to their developments on your land?”
When reviewing the initial Summit leases, Swenson said, “They wanted us to indemnify them on a lot of things, but they really weren’t indemnifying us. And so we reworked that and made sure that if anything happens, they’re the ones on the hook, not us. And then to cover that with insurance. Insurance is usually where that indemnity is funded from, so if there is an issue, the developer should have had the right amount of insurance dollarwise in the right types of insurance that would cover things, like pollution.”
“You need to have somebody who truly understands insurance. One of the key things that’s often missed is having the developer’s insurance company list you or your trust or however you own your property as an additional insured party, which allows you to essentially bypass the company and make a claim directly as if you were paying the bill for the insurance. You’re not. They are. Getting listed as additional insured is a crucial point.”
Swenson pointed out, “What happens, say when a carbon dioxide release occurs, and that damages the surface land, impacting the growth of crops or pastures? We want to make sure the lease responsibly manages that, maybe with a performance bond where a third party provides the bond in case there is an issue for reclamation or cleanup.”
People need to ask what the plan is to restore the property once the pipeline corridor is completed. Many times an area has issues with erosion or establishing vegetation. Down the road when the project is no longer needed, does the company equipment stay in the ground, and what about above the ground structures? They need to return the site to its original shape or establish a restoration activity.
Swenson said they asked Summit to carry a payment bond. If the contractor builds a compressor station and that contractor doesn’t pay those who did the work, then the lien on property would be satisfied by the payment bond.
At this time, nothing with Summit has been signed as the case remains with the Supreme Court.
Summit has applied for an amalgamation of the Swenson land and a hearing has been set in June on that. On Dec. 12, Summit’s permits were approved by the North Dakota Industrial Commission, including the amalgamation of Swenson’s land into the storage facility.
In the lease, they would inject the carbon dioxide for 20 years and would have an option to continue for another 20 years. The lease sunsets after that. In their version, they have no provisions for cleanup. “In our version, they would have to clean up the site.”
In summary, consider the following: How will this impact my operation? What are my obligations if I sign this easement/lease? How long will my land be tied up? How will I be compensated? What happens when the project ends?
Swenson advises, “Be very specific and follow the four corners doctrine of contract law, which states that if two parties enter a written agreement, the contract applies only to what is written within that document. No oral or implied agreements are binding. Once you sign that easement or lease, you are stuck with it. Everything needs to be written down.”
For now, it’s a waiting game. “We are comfortable with the draft of the lease we put together. As of today, neither party has signed anything,” Swenson said.
EASEMENT VS. LEASE
An “easement” is a right to use a landowner’s property for a specific purpose. Title to the property remains with the landowner, but the purchaser obtains a limited property interest. Because this is an ongoing interest, an easement is recorded in the county land records. It remains binding upon future owners or occupiers for the term of the easement.
A lease, on the other hand, is a conveyance of an interest in land for a term of years in exchange for a rental payment. Without special language in the lease agreement, a lease typically conveys an exclusive right of possession to the tenant.
Determine if the easement or lease is limited to a number of years, if it is self-renewing and/or if it is perpetual.
