The construction of pipelines in the country has been increasing, especially with the continuation of Marcellus and Utica shale developments in the oil and gas sector. More landowners in the Utica area have or will be approached by a company requesting to receive an easement so that they may construct a pipeline on their property.
An easement agreement is not one that should be taken lightly. When an easement is granted, it can partially or entirely remove the landowner’s rights from that property. Some easements are temporary, while others are perpetual. It is important to know the details before signing a contract because it will likely affect taxes.
Temporary easements, for example, are treated as ordinary income. A perpetual easement, however, is considered capital gains.
The Misleading Terms of a “Standard” Agreement
Landowners approached with easements are presented with the standard agreement. The agreement often utilizes broad language with vague clauses. These clauses often allow activities on the property that a landowner would typically approve.
When presented with these agreements, an owner needs to be aware of the common issues found in these easements, and what they can do to protect their best interests.
Common Areas of Concern in an Easement Agreement
1. Broad Wording in Opening Paragraphs
Opening paragraphs mention the intent of the agreement. However, these standard contracts often include broad wording that can be interpreted in a variety of ways. Some examples of what could be broadly construed in the opening paragraph include:
- Multiple use mentions. The ability to use a pipeline for other products — without mentioning what products could be utilized in that pipeline.
- Giving the company the right to install more lines. Instead, each line should be negotiated rather than a blanket allowance for any future installations.
- The size of the pipeline. The contract must specify the length and diameter of the pipe so that anything out of those parameters is negotiated separately.
- Temporary periods without specification. A temporary period must be defined, and if future interim periods are indicated, these must also have a definition.
2. Timber and Brush
Timber and brush are removed from the property to accommodate pipeline construction, but sometimes the contract forces the landowner to dispose of and pay for removal. Also, if there is marketable timber on the property, owners should ensure their agreement involves compensation.
3. Right of Ingress/Egress
An agreement lets a construction company enter and exit the property as needed for their project, but the purposes of that egress and ingress must be specified so that individuals cannot freely access private property.
A good agreement is one that has a minimum of 36 inches for the line depth to ensure it is not visible on the land.
5. Use of Premises and the Duty to Repair
The Grantee must improve anything they damage while installing their pipeline, including fences and gates. These should be repaired or replaced with items of equal or greater value.
Bottom Line: Research and Perform Due Diligence
While the easement request could be a lucrative one, it is only in the landowner’s best interest if they protect themselves and review these agreements with extreme caution. Often these agreements have clauses for the construction company when it should be for the landowner.
A first easement offer will not favor the landowner, but everything in a contract can and should be negotiated.
Ethan Vessels, Ohio Oil & Gas Attorney
Ethan Vessels is an Ohio oil and gas lawyer who specializes in the details of the industry. Before signing any agreements or contracts, it is highly recommended that you contact an attorney with Ohio oil and gas experience. A review of the agreement will provide you with peace of mind when dealing with the high-end oil and gas industry. Contact us today at Fields, Dehmlow & Vessels for experienced legal representation. Call 740-374-5346 or fill out our contact form and we will get back with you.