The Farmers’ Advocate Office (FAO) has received reports that enterprises are offering to buy surface leases from landowners. This is being promoted as a means of eliminating a perceived risk of landowners not receiving their annual compensation. The FAO strongly cautions landowners to consider these possible implications of selling their surface leases to enterprises:
- Recourse Available for Unpaid Rentals: To imply that no recourse for unpaid rentals is available is a misleading approach; in Alberta, landowners can obtain payment of their unpaid surface lease rentals through the Surface Rights Board (SRB) in the event that an operator becomes insolvent or refuses to pay.
- Ongoing Impacts: Selling a surface lease means conceding the right to renegotiate on the 5 year anniversary if the Loss of Use and Adverse Effect have increased. The annual compensation paid to a landowner is based on their impacts through Loss of Use and Adverse Effect. Loss of Use recognizes the fact that the landowner is no longer able to use the land under the surface lease, while Adverse Effect acknowledges the impact that the surface lease has on the remainder of the land.
- Not Realizing Full Value: Since a landowner has a right to be paid in full until the reclamation is complete, assigning the annual compensation to a third party in perpetuity may prevent a landowner from receiving full value in return for the impacts they experience during the lifetime of the development.
- Marketability of Property: Selling a surface lease to a private enterprise may appear attractive now but may be detrimental to the marketability of the property in the long-term, as a new buyer would be faced with ongoing impacts from a tenant who is not required to pay them annual compensation.
- Control of Surface Lease: When a surface lease is assigned to a third party, the rights currently held by the landowner are also handed over.
- Tax Implications: The enterprises are promising the sale of surface leases on a “tax advantage basis” but no information is being provided on how this benefit may be received.
- Release of Private Information: Some of these enterprises are requesting significant personal data up front with little or no commitment to confidentiality.
Please contact the FAO if you have any questions: Telephone: 310-FARM (3276)