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Local MSUE educator tackles land lease issues

March 9, 2011
By Ashley Hoholik

ESCANABA - As the 2015 deadline requiring 10 percent of Michigan's power to come from renewable sources rapidly approaches, more and more companies are exploring their green options. For many, this includes the exploration and development of wind power and hydraulic fracturing for natural gas - both of which impact landowners throughout the state.

To protect these landowners from potential leasing mistakes, Dave Andersen, regional land use educator for the Michigan State University Extension (MSUE), presented tips during Tuesday's MSUE "Agriculture for Tomorrow" conference at Bay College.

According to Andersen, more and more residents are being approached with land leases - particularly for wind turbine placement. However, natural gas may also be in hot pursuit.

"Natural gas is found in the shale formations in the state of Michigan," he said.

"They used to work in the Antrim shale, which is closer to the surface. Now the technology is such that they are actually drilling into what they call a Collingwood shale," Andersen said.

Collingwood shale, unlike the Antrim, is found in the Upper Peninsula, though in the eastern portions.

Until it gains in popularity, fracturing will likely remain secondary to wind energy. Numerous industry incentives, coupled with the added perk of being able to sell Renewable Energy Credits (RECs) or Green Tags to other companies, are leading companies to more aggressively pursue wind-friendly land, said Andersen.

While the overall benefits of wind energy are positive, he noted many landowners are signing away more than they bargained for by not obtaining more information.

"As a landowner, you have the right to say 'no' and, quite frankly, you are probably going to end up saying 'no' several times in process of negotiation," he said. "You may not arrive at an agreement initially - that's okay...It's not something you should take lightly and have happen in a very short period of time. You should do your homework and make sure you're getting the best deal."

Beside getting an attorney to help with the entire lease process, Andersen also recommended possibly forming a Landowner Wind Association. These associations, common in the west, allow landowners to avoid divided communities, protect their rights, and streamline the leasing process.

Landowners interested in wind energy on their property should consider sending out a request for proposal to weed out "land grabbers" and also check with their lender if the land is mortgaged, said Andersen.

"Check with your lending agency prior to leasing. Make sure they sign off on whatever agreement you're going with," he explained. "It can be a nightmare for the lender and a nightmare for you, the landowner, particularly once you've signed (the lease); then everyone's in hot water."

Ensuring the landowner's agreement with the company is a lease, and not an easement, which is often in perpetuity, is also a must.

"I would suggest, strongly, that you have a lease and it has an actual termination date associated with it," Andersen said.

In addition to an overall end date for the lease, Andersen pointed out landowners should make sure each phase of the development process has a time limit. Getting paid during each of these phases is equally important, he said.

"There are generally three periods of time in wind power and, possibly, a couple periods of time in the oil and gas leasing, that you can actually collect payments," Andersen explained.

Royalty payments stemming from the company's sale of energy to the electric grid should be coupled with payments from their sale of RECs for maximum financial benefit, he said.

No matter what, Andersen emphasized being comfortable every step of the way.

"A good lease is a win-win for you and the company, but you have to fight for it," he said.

"Your attorney should be involved with it every step of the way."

"Once it's signed, no one can help you at that point, so make sure you do your homework."

Even though there have been wind energy leases signed by landowners in the U.P., Andersen noted he has not encountered many seeking assistance with their lease.



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