Property owners are regularly approached by a variety of people who want to use those owners’ properties in some way (via easements or leases) while not actually acquiring ownership of that property. Frequently, the person or entity asking for use wants to use the property to access some other geography, to place items below the surface (for drainage or communication) or to generate (via windmills or solar panels) or save (like electric battery farms) electric power.
In such instances, there are some key things to remember and consider, only a few of which are identified in this column. First, the owner of the property (not the user) is usually responsible for real estate taxes. If the property has traditionally been used in agriculture, and the user changes that use, there can be a CAUV conversion penalty and continued, annually higher real estate taxes (sometimes triple or quadruple the CAUV tax rate).
Second, some long-term leases can offer annual, per-acre rent payments that are very attractive. And those rent payments can include some “escalators” in the rate over time, sometimes a couple percent increase every few years. This can all sound great, except that the “escalators” may not keep up with inflation. For instance, historically, over the last 40 years, inflation has been at about 3%. This means that an $800 per acre annual rent payment in 2021 might need to be more than $2,000 in 2061 dollars to provide the landowner with the same monetary/buying “power” due to simple inflation.
Third, users may need to disrupt or compact soil to accommodate their permitted uses. For instance, a property user may ask a landowner for permission to install underground utility lines across the owner’s house lot. It is important that the user de-compact the property after compaction and that the user replace topsoil to its original, approximate layers. Users should compensate landowners for disrupting the soil, and for farmers, that compensation should include some lost profit in addition to lost inputs.
Fourth, if the user intends to place any improvements on the property (driveways, etc.) or any structures on the property (i.e. energy production equipment), it is crucial that the user commit to removing every last one of those items from the property upon the conclusion of the term (time period) of use. I usually also insist that each user (in these circumstances) create and maintain a fund of money sufficient to eventually remove the items from the property or at least to have an insurance policy (bond) to cover those costs if the user goes out of business before the items are removed.
Arrangements for property use without ownership should always be in writing (and are often required to be in writing). If a user promises anything upon which the property owner is relying, those promises must be in that written agreement. If someone promises something, that someone ought to be willing to commit to that promise in writing if the promise is sincere and actually intends to honor that promise.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.