Just one this time, but it is big.
The gas leases which are being written on many parcels in Our Fair County. A lot of questions and a few thoughts have been generated. Here are a few.
Are landowners considering what these leases will do to their property in terms of value and marketability?
If a landowner agrees to lease his/her mineral rights to one of the companies running around the county presently, won’t that affect the value of the property? That is to say that if a property is being sold - and the seller is retaining the lease, the remaining value of the real estate should be diminished. Put another way, because a seller is selling less than the entire bundle of rights, which comprise ownership of real property, the value is reduced.
In terms of marketability, is a buyer willing to purchase a larger parcel (say 50 acres), if there is even a possibility of drilling on the property, especially if the lease is NOT included in the sale? At least at present, this is another uncertainty a typical buyer could be faced in these uncertain economic (read real estate).
The possibility of building a (or even buying an existing) home where a gas well could be drilled and operate fairly near that home; thus creating a commercial operation, certainly looms large these days. To make matters more interesting, if the lease were NOT included with the sale, the buyer would have this encumbrance on his property with NO benefit to him.
A significant number of these properties (over 10 acres) are enrolled in the Clean and Green program. Currently, research is being done to determine if a gas well on the property would be a violation of the program, thus triggering a rollback. What is Clean and Green? What is a rollback? Read on.
For those who don’t know, the Clean and Green program was set up almost 20 years ago to encourage larger (generally 10 acres and above) parcels in some form of agricultural use. The benefit to the landowner was a lowered assessment based on the soils type, slope and several other factors. The reduction in assessment is on the land portion of the assessment only.
To accommodate the Bluestone industry, permitted quarry areas could be excepted from the larger parcel and taxed at a higher rate without disturbing the remaining acreage. So, if a landowner has a 100 acre parcel for example, of which has a permitted quarry on 5 acres; 95 acres is under Clean and Green assessment, while the remaining acreage is under a mineral assessment (higher than Clean and Green assessment).
When a violation of the C&G program occurs, things get interesting. A violation, for example, could be taking the 95 acres in the example above and changing the use to commercial from agriculture. There are many other ways to violate the program, but let’s stay with this example. The landowner decides that he wants to put up a fast food restaurant on the property, without subdividing off a 2 or less or 10 or more acre parcel (a whole separate discussion). Thus, a violation has occurred.
Now it’s time to pay. It is this writer’s understanding that what is owed a rollback tax. This is the difference between the C&G assessment and the Fair Market assessment for as long as the property has been enrolled in the program (up to 7 years), plus 6% simple interest per year.
So the big question here is this: Is signing a gas lease on the entire parcel creating a commercial use of the property, thus creating a violation of C&G and triggering a rollback? This is still being researched in other county assessment offices throughout the Commonwealth.
A number of owners of non-commercial parcels not eligible for C&G are unhappy that owners of C&G approved parcels can have a commercial use to their property, in effect double dipping. First by getting the tax benefits of C&G and secondly by having a commercial use on that parcel. This is the kind of stuff that could lead to a class action lawsuit due to inequitable assessing.
Another question. If a parcel is mortgaged and a lease is signed, COULD that trigger the “Due on Sale” clause written into all mortgages? Or, could/should the bank ask for a significant portion of the Lease payment to be applied to the mortgage? As we think a little deeper, maybe a lease could actually hinder the mortgage process.
There are many other issues regarding gas leases which need to be discussed.
If a well is drilled on a leased property, should that property and all surrounding properties who benefit be subject to a “depletion tax”? Does one even exist? If so, this could trigger a significant amount of revenue to the County. Also, do the school districts get in on the action?
A landowner signs up with Company A. Company B actually does the drilling on an adjacent parcel, where does that leave the landowner? Out in the cold I suspect, unless Company A SELLS the lease to Company B. if that happens, you can be sure A will make a profit on the transaction, but will the landowner??
Once a well is drilled and capable of production, how do they get the gas to a transmission line. Of course, by pipeline. The potential problem here is that if other landowners don’t want a pipeline across their property how will this be resolved?
Just some thoughts and questions that anyone who signs up their property should be considering. A lot of material here for sure, but I believe valid questions.
Please note here that this writer is absolutely NOT opposed to an individual leasing a portion or all of their land. Absolutely NOT. This is a relatively poor county, and this may be a resident to make a few bucks from a hole in the ground. The real concern here is that a landowner could subject himself to a lease which could possibly make a lot of money for the gas company, which could cause him to lose significant monetary value of the land.
Oh yes, as a matter of negotiation, are the royalties based on net or gross profits of the company? I suspect the net, but someone will let us all know I am sure.
By the way, the Choconut Township website http://www.stny.rr.com/choconut/ has some interesting information on the subject if you go to the “links” at the bottom of the page.
Your thoughts?