CHAPTER 5 PROBLEMS OF MINERAL LEASING AND DEVELOPMENT UNDER PRIVATE TIMBERLANDS

• Jurisdiction: United States

Mining Agreements II
(May 1981)
CHAPTER 5
PROBLEMS OF MINERAL LEASING AND DEVELOPMENT UNDER PRIVATE TIMBERLANDS


Jane R. Wilkinson
Weyerhaeuser Company
Tacoma, Washington

I. INTRODUCTION

Mining companies are taking an increased interest in the acquisition and development of minerals located under timberlands. That interest brings its own set of problems. A mineral developer who acquires surface as well as mineral ownership will need to know a great deal about legal issues pertaining to timberlands. Even where mineral rights only are involved, the mining company, during the course of acquisition and development, will be directly or indirectly affected by timber-related legal issues.

The mineral developer of timbered lands first needs to understand the rights and obligations of owners of standing timber, and this is especially true when the rights to the timber have been severed from rights to the soil. Although the law pertaining to the severance of timber rights from the ownership of the land upon which the timber grown has been developing for at least half a millenium, its speed is glacial, and, as one court noted, "there is scarcely any other subject upon which there is so great a diversity of judicial decision..."¹ Some sense, however, can be made of it, and this paper will attempt to synthesize the probable general state of the law and avoid the digressions.

This article will cover forest practice laws and obligations, because they may be important to the mineral developer in several respects. At the leasing stage, the landowner may require the mining company to take certain precautions against fires, to follow specified procedures when clearing small areas, to assume obligations regarding the construction or use of roads, and to follow prescribed reforestation or reclamation procedures. (See Attachment 1.) These requirements may be equivalent to or more onerous than those imposed by state law and regulation. In addition, state timberland conservation laws may restrict the timing of development of the land for minerals, especially if surface mining or any large operation is contemplated.

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The timing and cost of development may be affected by state revenue laws that are aimed, in part, at timberland conservation. Also, it is helpful to understand the special treatment that timber is given under the Internal Revenue Code. Therefore, this paper contains a discussion of state and federal timber tax law.

Finally, it is useful to have in mind the methods of valuation of mature or immature stands of trees that need to be removed for mineral development. This knowledge is necessary for the negotiation of the amount for surface damage payable under the terms of a mineral grant or reservation, lease, in a legal action for damages, or in an acquisition of a surface estate with the minerals.

There are a number of state statutory provisions affecting the above topics. Although the statutes of all fifty states could not be examined, the statutes of seven states having mineral deposits in timberland areas were reviewed, and are cited as examples of what one might find, particularly in the areas of forest practices and timberland taxation. These states are: California, Idaho, Montana, Mississippi, Nevada, Oregon and Washington.

The leasing and development of government-owned timberlands is beyond the scope of this paper. A bibliography of articles on that subject is attached to this paper as Attachment 2. A glossary of forestry related terms is annexed as Attachment 3.

II. PROPERTY INTERESTS IN TIMBER AND TIMBERLANDS

A. Characterization of Trees

Trees growing on the land are characterized as fructus naturales until severance, and therefore are considered part of the property itself.² After severance, they become personalty, unless, in some instances, severance is due to Acts of God.³ If the property has been mortgaged, trees are, unless otherwise agreed, part of the mortgage security,

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whether planted before or after the date of the mortgage.⁴ Their severance may constitute a waste upon the property, which the mortgagee may take steps to prevent. On the other hand, cutting the trees may improve the value of the property, so that the mortgagee should have no complaint, or the logging of the property may be permitted by the mortgage agreement.⁵

B. Conveyances of Standing Timber

1. Real Property Interest: A real property interest in standing timber may be conveyed by grant or reservation in a deed, contract or other method of conveyancing, apart from the land itself. In most, if not all, jurisdictions, a real property interest in standing timber will be conveyed if: 1) intended by the parties, and 2) the formal requirements of a real property conveyance are met.⁶

The nature of real property interest conveyed is often discussed and debated, although the importance of the matter is less significant than the frequency and intensity of debate would suggest. It has been held that a fee simple interest in standing timber may be conveyed if the conveying instrument is clear on that point.⁷ Even then, the perpetual right may be only to timber standing at the time of the conveyance. A conveyance of timber rarely, however, is intended to last into perpetuity. Usually a time period is specified in the conveying instrument, or a reasonable time for cutting the timber is implied.⁸ The property interest acquired when the conveyance is for a limited time has been characterized by the courts as a "determinable" or "defeasible" fee, a profit a prendre⁹ , and a lease.¹⁰

One commentator makes a case for calling any claim of title to standing timber a profit a prendre.¹¹ A conveyance may be intentionally structured as and called a lease; leasehold interests in timberlands are common in the South where the growing cycle

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for trees is relatively short (around 25 years).¹² An ineffective attempt to convey a real property interest may result in a simple license. A mere license to cut timber may be created intentionally, and one usually is implied from a sale of timber with title to pass after severance by the buyer. The license becomes irrevocable when coupled with an interest.¹³

2. Hierarchy of Rights: Mineral — Land — Timber: If a real property interest in timber has been transferred under deed or contract or other such conveyance, the rights of the grantee are superior to those of a subsequent taker for value who has actual or constructive notice.¹⁴ The rule is less certain if only a personal property interest in the trees is taken.¹⁵

No cases or commentary could be found on the rights of a mineral owner vis-a-vis the timber owner. Arguably, basic legal principles dictate that the severance of the minerals from the surface after a real property timber conveyance leaves the mineral owner in a inferior position to the timber owner, assuming the mineral owner has actual or constructive notice of the timber rights and has to cut trees in order to exercise his mineral rights. Again, this may not be true if the timber sale is considered to be personal property. Conversely, if the mineral estate severance occurs first, and actual or constructive notice is given, the mineral estate is dominant. In that situation, the timber could be cleared to permit exploration and development of the minerals at such time as the mineral developer deems appropriate, giving the timber owner a reasonable opportunity to clear the land. The timber owner probably has whatever rights against the mineral owner that the surface owner has for damages to the trees (unless the conveyance states otherwise) and can look to the surface owner for compensation resulting from any wrongdoing on the part of the surface owner. Note that the resolution of any conflict also will turn on the construction of the respective conveying instruments.¹⁶

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The "surface owner consent" provision of § 510(b)(6) the Surface Mining Control and Reclamation Act, 30 U.S.C. § 1260 (b)(6), requires the written consent of the surface owner for surface mining, or a conveyance that by its terms permits surface mining, or will be so interpreted under state law. Neither the Act, its regulations¹⁷ nor its legislative history address problems that could occur when several persons hold an interest in the property. This writer would not urge, however, a construction of the statute to require consent from those holding a less than fee estate. Even if timber ownership is considered a "fee" interest, and the timber is monetarily more valuable than the bare surface, the timber owner's rights with respect to surface mining should be left to the common law principles. As a practical matter, however, the timber owner will have to be dealt with when there is any kind of mining activity, for no timber owner will allow a destruction of the timber to go unchallenged. Moreover, a cooperative arrangement with the timber owner is advisable for any needed removal of trees, merchantable or otherwise, and for the protection of the remaining timber.

In some of the timbered states, such as Washington and Oregon, where mineral development only recently is taking place again, there exists little or no meaningful judicial guidance as to what rights the holder of the minerals has to severely damage or destroy the surface, including timber, absent a grant or reservation that clearly spells out those rights.¹⁸ One might speculate that courts in western timbered states would fall in line with the trend taking a view favorable to the surface owner on this controversial matter. Timber is a very important resource in these states (witness the treble damage statutes for wrongful cutting)¹⁹ and their courts tend to regard themselves as "progressive." Also, the mineral severance often results from timberland exchanges where the parties have not contemplated that the mineral reservation would include surface destruction. In the Southeast, on the other hand, where...