CHAPTER 12 LAND TITLE ISSUES RELATED TO THE ACQUISITION AND DEVELOPMENT OF COAL ASSETS
| Jurisdiction | United States |
(Feb 2012)
LAND TITLE ISSUES RELATED TO THE ACQUISITION AND DEVELOPMENT OF COAL ASSETS
Westmoreland Coal Company
Colorado Springs, Colorado
Steven J. Vuyovich
Holland & Hart LLP
Salt Lake City, Utah
Tory L. Jackson
Faegre & Benson LLP
Minneapolis, Minnesota
MORRIS W. (MIKE) KEGLEY is General Counsel, Mining & Operations, at Westmoreland Coal Company in Englewood, Colorado. He is a Graduate of Indiana University School of Law, Indianapolis (Cum Laude), and later taught as an Adjunct Professor of Law. Prior to joining Westmoreland Coal Company in 2005, he was with Peabody Energy Company, AngloGold North American, Kennecott Energy Company, Amax Coal Company and Cyprus Amax Minerals Company. Mike is admitted to practice in Indiana, Illinois, Wyoming and Colorado.
STEVEN J. VUYOVICH is an attorney with the Salt Lake City office of Holland & Hart LLP. He has the experience in environmental, energy and natural resources law that is necessary to provide workable solutions to his clients' challenges. As a former owner of commercial cattle operations in California and eastern Oregon, he has a hands-on understanding of the critical land and water issues that are similar to those faced by many of his clients throughout the West. His practice centers on environmental, energy and natural resources law, including, water rights, real estate, oil and gas, mining, public lands, and geothermal energy. By representing his clients before state and federal regulatory agencies, and in court proceedings, he enables them to return to the important work of running their businesses. Mr Vuyovich has extensive experience in water rights, including, evaluations and due diligence reviews of water rights, acquisitions and transfers of water rights, changing points of diversion, places of use and types of use of water rights, and protecting water rights. In addition, Mr. Vuyovich has assisted oil and gas, mining, and other corporate clients in acquisition, title, financing, access, permitting, and compliance matters on federal, state and private land. His clients have included electric utilities, public water supply entities, financing institutions, developers, commercial resorts, oil and gas companies, mining companies, aggregate companies, water companies, agricultural water users, and individuals. Mr. Vuyovich is admitted to practice in the states of Idaho, Utah, and Wyoming.
TORY L. JACKSON is a member of the Faegre & Benson real estate practice in Minneapolis, Minnesota. He has experience in many aspects of commercial real estate including the purchase and sale of real property, development, financing, leasing, land use, and zoning. Tory also has extensive experience in real estate and regulatory matters affecting the oil and gas industry, particularly in North Dakota's Bakken Formation.
I. PRELIMINARY LAND TITLE CONSIDERATIONS FOR THE ACQUISITION OF MINING ASSETS
A. CORPORATE MERGERS vs. RESERVE ASSET ACQUISITION
When a current owner of mining assets (fee title or leasehold title) and a prospective purchaser of the assets reach a preliminary agreement as to the sale and purchaser of the mining assets, there are two basic means of structuring the transaction. One consists of a sale of the business entity that holds the mining assets (usually the sale of a corporate or limited liability entity), and the other consists of the sale of the specific mining assets (the conveyance of fee properties or the assignment of leases).
While there can be significant business and legal differences between the two types of structures, when it comes to land title considerations the distinctions are not great. However, one of the key differences between a corporate acquisition and an asset acquisition can center around the need for consents to assignments and transfers of the underlying real property interest. The consent in question is the consent from the grantor or lessor to the seller, and arises generally in the context of an asset acquisition rather than an entity acquisition. The issue is more common in the context of a lease, although as we will see it can also arise in a setting involving a fee conveyance.
In many mining lease agreements, especially those between sophisticated parties (such as corporate lessors), the terms of the lease may contain expressed language that requires the consent of the lessor to any assignment or transfer of the lessee's interest under the lease agreement. The assignment provision frequently is conditioned in some respect. It is not uncommon for the provision to state that the consent cannot be unreasonably withheld, or that the consent is not
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required where (i) the assignee meets certain described objective criteria (usually of a financial strength nature), (ii) the assignment is to a wholly owned subsidiary or affiliate of the lessee, or to a financial lender, (iii) or where the assignment is in connection with the sale of all or substantially all of the assets of the lessee. There are times, however, where the no-assignment provision does not contain any conditions, or even states that the consent is within the sole discretion of the lessor.
In most jurisdictions, if the lease agreement is silent, then (i) there is a legal presumption that the lessee's interest can be freely assigned, and (ii) there is a further legal presumption that if consent is required, that it will not be unreasonably withheld. But, the specific language of all lease agreements should be carefully reviewed to determine whether any expressed limitations on assignment or transfer exist. There are few items more troubling than a significant acquisition of substantial mining assets being held captive by an uncooperative lessor who needs to consent to a lease assignment.
In fee tract situations (those where the prospective seller owns the underlying mineral property), similar issues can arise. These are usually in the form of a right of repurchase or a right of first refusal held by the original grantor to the current seller. These provisions can be conditioned upon or triggered by a sale from the original grantee - now prospective seller. They can also be triggered by the completion of mining; and, depending on the specific language, may pose the question of whether it is the completion of mining by the original grantee, or the completion of mining by any future grantee. Much the same as the lease assignment issues, due diligence needs to identify all such potential conveyance consents.
B. TITLE INSURANCE OR TITLE OPINION
Regardless of which general acquisition structure is utilized, in each case it is essential for the purchaser to conduct due diligence to assure itself that, when the acquisition is complete, it will have acquired good title to the mining properties which serve as the basis for the future mining operations.
The due diligence should begin with an identification of the key mining areas for the continuation of current mining operations and for the development of future mining. This exercise first requires close consultation between the purchaser's operations personnel, land personnel and legal personnel to assure a
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clear understanding of the important mining tracts. It is essential for there to be a clear and common understanding of the key tracts to be acquired. Mine planning maps, land control maps and land control documents (deeds and leases) need to be closely reviewed to assure that the legal descriptions in the land control documents describe the mining areas depicted on the various maps that tend to be relied upon by the mine operating personnel.
Once the key areas have been identified, the prospective purchaser will want to determine whether the prospective seller holds good title to the mining assets, and, as we discussed above, has the free and uninhibited right to convey or assign the mining assets to the purchaser. The most logical place for this diligence exercise to begin is a review of the seller's land and title files. Whether the seller has owned the assets for a long period of time or has only recently acquired them, a threshold question is what title documentation was used by the seller in its acquisition, and what title work has been conducted by the seller since.
After it has been determined whether past title work exists, a decision will need to be made by the purchaser as to whether and how to cover any change of title since the date of the last or existing title work. It is not totally inconceivable that a decision may be made not to perform any further title work, depending on the comprehensive nature of the existing work, the current nature of the work, and the nature of representations and warranties proposed to be given by the seller. However, in most cases the prospective purchaser will want to update any existing title work; and, in those cases where no title work exists or its is inadequate in nature or quality, the purchaser will need to develop a full review of the seller's title to the mining assets.
Assuming that title work needs to be prepared, whether original in nature or an update to existing title work, the question becomes whether to purchase title insurance or title opinions prepared by legal counsel. This decision may depend somewhat on the nature of any existing title work. It may be quicker and more cost effective to update the existing title work (insurance or opinions) than to develop a different type of title work. In other words, if there is an existing title insurance policy, it may be best to ask the title insurance company to bring the title policy up to date; or, if there are existing title opinions from legal counsel, they can probably be easily updated.
If there is no existing title work, then the purchaser will need to decide whether to purchase a title insurance policy or to purchase title opinions from legal counsel. While there are several...
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