§ 8.7 - Timber and Log Sale Contracts
Jurisdiction | Washington |
§8.7 TIMBER AND LOG SALE CONTRACTS
Timber sale contracts are distinguished from log sale contracts in that they transfer rights in standing timber, with the purchaser assuming responsibility for logging. Both types of contracts are discussed below.
(1) Timber sale contracts
Timber sale contracts are a common way to transfer interests in timber separately from the land. Timber sale contracts are distinguished from timber deeds in that they provide for future payments by the timber owner. Timber sale contracts usually impose other affirmative obligations on the timber owner, rather than merely granting rights to the timber.
Practice Tip: | Timber sales are different from land sales or sales of typical personal property. For example, the value of the timber can be substantial and quite difficult to establish, especially for sellers who have little experience in timber transactions Individuals who have little experience selling timber should consider hiring a consulting forester to help assess the value of the timber and explain the logging rules. |
The general legal principles discussed above under timber deeds apply as well to timber sale contracts. Timber sale contracts, however, present some additional legal concerns, including specifying how the timber is to be logged, specifying the purchase price and method of payment, allocating the risk of loss, warranties or disclaimers regarding quantity or quality of the timber, and whether the contract may be recorded.
Timber sale contracts may be drafted in the form of a license to enter lands for the purpose of removing timber with title to logs passing at the time of removal, or of an immediate conveyance of timber with ancillary rights to remove it, or of an agreement allocating rights and obligations without using traditional legal terminology.
There are two main forms of timber sale contracts: (1) lump-sum contracts whereby the purchaser pays a fixed amount for the right to remove specified timber from the contract area for a defined period of time; and (2) pay-as-cut contracts (sometimes called scale contracts) whereby the purchaser agrees to pay a defined price per unit (usually thousand board feet) of timber removed.
(2) Lump-sum contracts
Lump-sum contracts may provide for a single payment or installment payments. Generally, to limit the seller's credit risks, lump-sum contracts prohibit removal of a greater percentage of the timber than the percentage of the price paid. The purchaser may want the installments scheduled roughly to correspond with the expected rate of removal to minimize working capital requirements. If the contract is not to be recorded, this also minimizes the buyer's risk with respect to the landowner's creditors or subsequent purchasers (not to mention the risk that the seller may sell the same timber more than once).
Practice Tip: | Lump-sum contracts that provide for installment payments create an installment schedule in which payment is mandatory rather than optional. Accordingly, if the purchaser fails to log the specified timber from the contract area in the defined time, the payments are still due, regardless of whether the seller subsequently sells the right to log the timber to a different party. Syrovy v. Alpine Res. , Inc., 122 Wn.2d 544, 551, 859 P.2d 51 (1993). |
This payment method is best when the sale boundary is easily defined and the timber to be cut is uniform. The advantages of lump-sum payments for sellers are that they receive full payment before harvesting begins and risk of timber loss is transferred to the purchaser. Accordingly, purchasers are careful not to over-pay for the timber to compensate for this added risk; so sellers often will receive less for the timber than they might otherwise receive, because if purchasers incur the full risk of loss and must pay in advance, they are likely to offer a lower price for lump-sum contracts than they would for pay-as-cut contracts.
(3) Pay-as-cut contracts
Pay-as-cut contracts inherently limit credit risks for both parties and working capital needs of the purchaser because the payments correspond with the rate of removals. Such contracts, however, require far more policing by the seller to protect against loss. The contract should specify who determines the volume of timber removed and the manner in which such determination is made. Typically, the parties will employ professional scaling bureaus.
Practice Tip: | The administrative costs are higher for pay-as-cut contracts, as the logs must be scaled |
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