Legal Issues For Private Timberland Landowners - Stephen B. Schrock Morris, Manning and Martin, LLP

Legal Issues For
Private Timberland
   Landowners

     Stephen B. Schrock
Morris, Manning and Martin, LLP

2011 National Conference of The
 Forest Landowners Association
 Colonial Williamsburg, Virginia

                      © 2011 ALL RIGHTS RESERVED

MMM Timberland Transactions

MMM’s Timberland Team has helped Clients make Timberland
 Investments in all parts of the World

Types of Timber Ownership

 Fee Simple –
        Own Land, Trees, Improvements and Minerals (if any)
 Timber Deed –
        Own Trees with right to access
 Timber Lease –
        Lease land with right to grow Trees and any other uses permitted by
         the Lease

Timber Volumes and Acres and
                            Harvesting
 Purchase Price of the Timberland is often
based on or adjusted by the timber volumes
determined by new Cruise or audit of
existing Cruise.
 Formula for adjustment complicated
because must agree on cruise specification
and unit values for each type of timber
product.
Often there is a collar around the agreed
volumes (less and more) where no adjust is
made to Purchase Price.
Acres can be determined “roughly’ by
cruise but most accurate is to survey, if
possible.
 Must also address timber harvesting
between contract execution (or inventory
date) and closing.

Earnest Money

 Often a Purchaser (especially a
large Purchaser) of Timberlands
argues it should not have to make a
Earnest Money Deposit since it is
spending a lot of money on due
diligence

 Advantage to Purchaser, however,
that in the case of a default under the
Contract by Purchaser the damages
due Seller can be made limited to the
Earnest     Money      as    Liquidated
Damages

Seller’s Contract Representations and
                           Warranties
 Sellers want to sell Timberland “As Is,
Where Is” with no representations and
Warranties with Buyer doing all due
diligence and/or a “free look” period.
 Buyers should ask for reps concerning
legal status and authority of Seller,
binding agreement, title, adverse claims,
tax assessments and rollback taxes,
environmental matters, contracts, permits,
leases, trees, casualty, and access.
 Consider   who is making reps and
Warranties and beware of post closing
escrows and side agreements.
 Often reps will be limited survival period
after closing, basket or deductible before
a claim for breach can be made and a cap
on overall amount of claims for breach

Legal and Practical Access

           • Obviously, a tract of timberland is
           worth less and is difficult to utilize if
           there is no access by the owner.

           • Frequently, a tract of timberland
           does not directly abut a State or
           County maintained open public right-
           of-way road.

           • Difficult to tell from survey, plats and
           even GIS which roads are “public
           roads.”

           • State or County road maps are
           helpful.

Mistake: Roads = Access

         • Does the existence of a “road” (see RED
         roads on this tract map) mean legal
         access?

         • There are many roads shown on the
         map but they are “logging roads.”

         • Adjacent landowners (especially timber
         companies) often afford access to one
         another by informal oral agreements.

         • Relationships, however, can sometimes
         “sour” between private landowners.

         • Access to part of tract may not get to all
         the tract (wetland, bottomlands).

Steps to Insure Access

 In some instances, there exists (or counsel can obtain) written easement
 agreements from adjacent landowners to a public right-of-way.
 With “informal” agreements between landowners it is difficult or impossible
 to get parties to reduce this agreement to writing.
 A Title Company is sometimes willing to offer “insured” access insurance
 based on a sworn affidavit from a seller and/or its predecessor that it has
 used the road for a period of time to gain adverse possession.
 A completely landlocked tract may have “Easement by Implication”
 (depends on local law) which Title Company may insure, but may have to
 bring a lawsuit to establish such an easement.
Ultimately, if tract lacks “legal” or “insured” (by title company) access,
 purchaser of timberland tract must weigh the risk that it has “practical
 access.”

Environmental Issues

 Every Purchaser of Timberlands should
have performed a Phase 1 ESA of the
Property in order to claim the “Innocent
Landowner Defense” against
governmental liability under CERCLA
 For Timberlands most ESAs will find
trash dumps and similar problems
 In some area, however, like where
mining has taken place could be
significant issues such as sludge pond.
 A Purchaser should want the right to
“carve out’ an area with environmental
problem. Sellers will resist because they
do not want to be left with parts of the
property here and there

Timberland Surveys

        A survey of the property is the
       most accurate way to determine the
       number of acres and boundary lines
       of a tract of property and to confirm
       the historical deed legals, many of
       which were vague at best.

        For Timberlands, however, the
       expense and time to survey a large
       tract of Timberland meant that
       surveys were being done.

        With the advance in GPS and GIS
       technology, we are better able to do
       the above.

Mineral Rights

      It is rarely worth the time & expense to do a
     full chain of title search for minerals, especially
     in areas where no valuable minerals exits.
      The standard title search will often show
     mineral reservations so since the mineral estate
     is often the dominate estate the holder of the
     mineral rights can mine the property and
     destroy trees.
      Compensation is usually provided for by law
     or in the mineral reservation, it does not make a
     timberland owner whole because it loses the
     value increase as the trees grow.
      In areas where known mining exist (Kentucky,
     Tennessee, parts of Florida) the Timberland
     owner should enter in a Surface Damage
     Agreement with the mineral Owner

Potential Opportunities?

• Biomass Projects – In the US South, 135
  wood-consuming companies announced
  bioenergy projects with potential wood use of
  55.9 million tons/year by 2020. Recent
  increase in “Pellet” Plants for shipping to the
  EU Counties who have made commitments
  to use more renewable fuels
• Carbon Trading – Appears to be great
  possibilities for timberland but what/when
  will US Congress pass and will the President
  sign? Will it get off the ground?
• Conservation Easements – Represents
  one of the best Opportunities (federal
  deduction and state tax credits) IF the
  timberland owner is willing to restrict long-
  term use to timberlands and perhaps minor
  development (affects value and
  marketability).

Conclusions

Investing in and Owning Timberland
is Unique – it is not the same
commercial or residential real estate.

Timberland is a good basic long
term investment: lumber and paper
prices vary but Trees Grow!

In addition to basic timberland
ownership, many Potential
Opportunities exist, but it is yet
uncertain if Viable and Economical.

MMM Timberland Team

                          REAL ESTATE
Steve Schrock    sschrock@mmmlaw.com        404.504.7678
Rebecca Vandiver rvandiver@mmmlaw.com       404.504.7669
Tom Gryboski     tgryboski@mmmlaw.com       404.504.7660
Doug Selph       dselph@mmmlaw.com          404.504.7708
Wenona Mills     wmills@mmmlaw.com          404.504.7695
         INTERNATIONAL, TAX & INVESTMENT MANAGEMENT
Glenn Dunaway    gdunaway@mmmlaw.com        404.504.7676
Tim Pollock      tpollock@mmmlaw.com        404.504.7710
Chuck Connors    cconnors@mmmlaw.com        404.504.7679
Karen Reschly    kreschly@mmmlaw.com        404.504.7685
                        ENVIRONMENTAL
Gerald Pouncey   gpouncey@mmmlaw.com        404.504.7738
Heather Friedman hfriedman@mmmlaw.com       404.504.7781
                       REITS & SECURITIES
Chuck Beaudrot   cbeaudrot@mmmlaw.com       404.504.7753
       ALTERNATIVE FUELS, BIOMASS & “GREEN” PRACTICES
Greg Chafee      gchafee@mmmlaw.com         404.504.7693
David Calhoun    dcalhoun@mmmlaw.com        404.504.7613

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Cresci e Nogueira de Lima
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Phone: 55 11 2171-1300
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Disclaimer

The information presented and contained within this document are
provided by MMM as general information only, and do not, and are
not intended to constitute legal advice.

Any opinions expressed within this document are solely the opinion of
the individual author(s) and may not reflect the opinions of MMM,
individual attorneys, or personnel, or the opinions of MMM clients.

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