ACCESS RIGHTS From Start to Finish Access Rights: Start to Finish - - PowerPoint PPT Presentation

ACCESS RIGHTS

From Start to Finish

Access Rights: Start to Finish

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Kerry O. Irwin

Dinsmore & Shohl LLP 250 West Main St., Suite 1400 Lexington, Kentucky 40507 (859) 425-1034 Kerry.irwin@dinsmore.com

The End (Spoilers)

» Avoid using forms (and form language). » Use subject matter experts. » There is no substitute for knowing your client’s business.

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Access Rights: Start to Finish

Drafting Access Rights

Access Rights: 
 The Coal Company’s Perspective:

» Ensure that they have the full scope of rights that they need to

conduct their operations safely and efficiently.

» Allocate risk for potential liabilities at end of mining and

reclamation.

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 The Landowner’s Perspective: 


• » Guard against risks arising from the coal company’s operations.

» Allocate risk for potential liabilities at end of mining and

reclamation, including long-term environmental liabilities.

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Scope of Presentation

Easements Option and Exploration Agreements Coal Leases Post-Termination Issues Other Issues and Agreements

» Cooperation Agreements » Permit Access for Reclamation » Haulroad Agreements

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Easements Appurtenant

» Created for the benefit of the dominant estate, i.e., the servient estate is burdened for the benefit of the dominant estate. » In the context of mineral rights, mineral owners typically benefit from an easement that burdens the severed surface estate such that the mineral owner is granted the right of reasonable use of the surface for the purpose of extracting the minerals.

Easements in Gross

» Personal to the holder of the easement, rather than being connected to a particular dominant estate » Easement holder has the right to use the servient estate regardless of what property the easement-holder might own. » A typical example of an easement in gross is a pipeline or utility line easement.

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Implied Easements (Not Ideal)

By implication, the right to occupy and use so much of the surface as may be reasonably necessary for the beneficial and profitable production of the minerals accompanies a grant of mineral rights.

• Express Easements

(Ideal)

An express easement can specify the location, purpose, scope and duration of the easement, together with the respective rights and obligations of the dominant and servient estates’ owners.

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Option and Exploration Agreements

• “I think this is the beginning of

a beautiful friendship.”

Option and Exploration Agreements typically include:

» The exclusive right to conduct exploration in, on or under certain properties; and » An exclusive option to lease or purchase those properties.

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Exploration Rights

Coal Company

Coal Company Strategies: » Ensure grant is broad enough to allow operator to determine whether sufficient mineral reserves are present and economically recoverable. » Require landowner to give sufficient reps and warranties as to title.

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Exploration Rights

Landowner

Landowner Strategies: » Limit the duration of the option to ensure operator conducts diligence in timely and workmanlike manner and that the landowner’s covenant of exclusivity is limited. » Require a deposit to cover damage to the property; can be applied to purchase price upon exercise of

• ption.

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Coal Leases

“I’m the only cause I’m interested in.” Coal Lease Access Rights: » Surface Access Rights » Reclamation Access Rights » Post-Termination / Expiration

Access Rights: Start to Finish

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Coal Leases

Surface Access Rights The General Grant: “It is intended by the Parties that Lessee shall, during the term of this Lease, have the right in connection with its mining

• perations to exercise all of the mining

and surface and other rights in and to and appurtenant to and connected with the Leased Premises which Lessor now has

• r which Lessor has a right to lease or

let.”

• Lack of specificity can create ambiguity.

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Coal Leases


Surface Access Rights


The Specific Grant:

“[…] all necessary or convenient rights and privileges […] including, but not limited to, the right to: (i) use sand, water and gravel on the Leased Premises; and (ii) divert water courses; (iii) construct and operate on the Leased Premises roadways, haulways, water drainage courses, sediment ponds, and any other improvements or structures necessary or convenient for the mining, storing, processing and shipping of coal on and from the Leased Premises and from any property now or hereafter owned, leased or controlled by Lessee adjacent to the Leased Premises; and (iv) make such other use of the Leased Premises as shall be convenient for the mining, transporting, storage and processing of said coal, including the placement of overburden from any coal mined by Lessee from the Leased Premises and from any property now or hereafter

• wned, leased or controlled by Lessee adjacent to the Leased Premises.”

Access Rights: Start to Finish

Coal Leases


Surface Access Rights Right to Remove Timber: “Lessee shall have the right to remove the timber, surface, subsoil and

• ther strata overlying the coal to be mined hereunder by the surface

mining method or for any other use of the surface needed for conducting its mining operations upon the Leased Premises within the boundaries of the Leased Premises as may be necessary for the efficient mining of said coal, subject, however, to the following conditions […]”

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Coal Leases


Surface Access Rights Foreign Overburden

• “In so far as Lessor has the right to grant such rights, Lessee shall have

the right to use the surface of the Leased Premises for the placement

• f overburden from adjoining coal lands being mined by Lessee, or its

affiliates if necessary.”

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Coal Leases


Surface Access Rights Railroad Infrastructure “[T]he right to enter into an agreement with any railroad company covering the construction, maintenance and operation of spur tracks, tipple sidings and side tracks for storage of loaded or empty railroad cars, and for the construction, maintenance, and operation of loading ramps, bins, etc. on the Leased Premises to be used in connection with

• perations under this Lease […]; provided, however, that no such

agreement shall impose any obligation or liability whatsoever on Lessor.”

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Coal Leases

Reclamation Access rights

• The grant of certain reclamation access

rights in a coal lease has almost reached the point of being boilerplate, but changes in environmental laws require greater scrutiny of this category of access rights.

Access Rights: Start to Finish

Coal Leases


Reclamation Access Rights » Coal company’s perspective: compliance with reclamation

• bligations under its permits is compulsory; if it can’t access the

property, the lessee risks sanctions from regulatory agencies. » Landowner’s perspective: permitting the lessor to access the property to conduct reclamation activities benefits the land and lessens the lessor’s potential long-term liability for noncompliance and environmental liabilities.

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Coal Leases


Reclamation Access Rights “Upon the termination, expiration, or cancellation of this Lease for any reason whatsoever, Lessee does and shall have the right to re-enter the Leased Premises without additional charge or cost for such period

• f time as is necessary for the purpose of doing any and all reclamation

work that may be necessary to obtain full reclamation bond release or to otherwise comply with all reclamation obligations imposed upon Lessee by appropriate governmental authorities.”

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Coal Leases


Reclamation Access Rights

• “Lessee shall have the right, without additional consideration, to reenter

the Premises after termination of this Lease for such period of time as is necessary for the purpose of performing or completing reclamation according to its permits or to otherwise comply with all reclamation

• bligations imposed upon Lessee by appropriate governmental

authorities.”

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Coal Leases


Reclamation Access Rights

• “Lessee shall, after the effective date of surrender, cancellation or

termination of this Lease, remain liable for any damages or obligations to third parties or governmental agencies, whether known or unknown, matured or unmatured, discovered or yet to be discovered, including reclamation or cleanup obligations on the Leasehold arising out of Lessee’s operations or activities on the Leasehold, and shall hold Lessor harmless should it incur any obligations or liability incidental to

• r arising out of Lessee’s operations or activities.”

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Coal Leases


Reclamation Access Rights

“Lessee shall pay, or shall cause to be paid, all reclamation and shutdown fees, and shall otherwise be entirely responsible for the complete performance of reclamation, restoration, water treatment and shutdown obligations relating to the Leased Premises. Lessee shall perform all restoration and reclamation services as soon as reasonably possible after completion or cessation of the activities which establish the need or obligation to perform restoration and reclamation services and shall at all times keep such work current. Lessee shall pay, or cause to be paid, all fines which may be levied or assessed in connection with the mining operations of Lessee by the State of ___________

• r any other governmental authority.”

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Coal Leases


Reclamation Access Rights

• Some states also have a statutory right of entry to enter upon the land
• f another to carry out reclamation operations or to remediate

reclamation violations where required under state or federal law, such as the Surface Mining Control and Reclamation Act, 30 U.S.C. § 1201 et seq (SMCRA). However, as is usually the case, best practice is to address the full scope of rights needed or obligations imposed on the front end, in writing.

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Coal Leases


Post-Termination / Expiration A recent series of cases under the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq. (the Clean Water Act) has attempted to impose liability on landowners for discharges from valley fills that continue even after reclamation is complete, bonds are released, and SMCRA and National Pollutant Discharge Elimination System (NPDES) permits are terminated.

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Coal Leases


Post-Termination / Expiration Additionally, mining regulatory authorities are increasingly hesitant to grant bond release to sites that contain “perpetual” substandard

• discharges. In such cases, regulatory authorities often require the

establishment of long-term water treatment trusts that in turn require

• ngoing monitoring of water discharges and operation and

maintenance of treatment systems.

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Coal Leases


Post-Termination / Expiration
 Drafting for Long-Term Liabilities Trends:

» A release of the lessor from liability due to pollution or

discoloration of streams fed by waters or interference with the present bed of such streams or their natural flow.

» A requirement that the lessee is solely responsible for the

treatment of any water discharged on the leased premises or adjacent lands.

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Coal Leases


Post-Termination / Expiration
 Drafting for Long-Term Liabilities

NPDES Permit Option Lessor option to require the lessee to transfer to the lessor any NPDES permit that is eligible for release by the applicable regulatory agency due to all water quality parameters being in compliance with the requirements set forth in the NPDES permit.

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Coal Leases


Post-Termination / Expiration
 Drafting for Long-Term Liabilities

» As of the time of transfer to the lessor, lessee released by the

lessor for any and all liabilities, costs, obligations and expenses of any type or kind pursuant to the lease associated with the permit.

» Lessee pays for sampling and analysis costs associated with the

permit over a certain period.

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Coal Leases


Post-Termination / Expiration
 Drafting for Long-Term Liabilities

» No termination of any NPDES, surface mining or other permit,

unless the discharge from or condition of the leased premises covered by the permit complies with all laws and regulations.

» If, upon termination of the lease, there are any permits which cannot

be released, those permits should be maintained by the lessee.

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Coal Leases


Post-Termination / Expiration
 Drafting for Long-Term Liabilities

» Upon a final, non-appealable order by the federal court having

jurisdiction over the lease that holds a landowner cannot be held liable under the Clean Water Act for discharges following the valid and legal release of an NPDES permit on its property, the foregoing provisions should be terminated.

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Coal Leases


Post-Termination / Expiration
 Drafting for Long-Term Liabilities

» All of these situations are heavily dependent upon the background

environmental regulatory and legal requirements in a given

• jurisdiction. For example, some states have developed permits

specifically addressing water discharges from former mining sites (KY). Such permits may provide landowners more favorable terms than are available to mining operators. Consultation with environmental practitioners is always advisable when negotiating such agreements.

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Permit Access for Reclamation

“I came for the waters.” Permit Access for Reclamation

Access Rights: Start to Finish

Permit Access for Reclamation


Drafting Strategies


• » The permittee may have reclamation and monitoring obligations on

property it has never owned or controlled.

» It is in the best interest of the landowner and the permittee for the

permittee to have access to the property to perform its obligations, but because this is not a traditional lessor/lessee relationship, it requires a hybrid agreement or license.

» Such an agreement may grant access for transportation and for

reclamation activities.

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Permit Access for Reclamation


Drafting Strategies


• » Depending on whether the grantor owns or leases the property in

question (i.e., one coal company may control the property by lease, while another coal company may have the permit obligations with respect to a permit covering that property), the parties should determine whether the consent of a base lessor is required to grant the access rights.

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Permit Access for Reclamation


Drafting Strategies


• » The exact scope of the right of entry should be specified by property

description, map and permit boundary if possible.

» The agreement should mandate that, should the licensee do

anything to create a common law nuisance or environmental hazard, or anything which could cause pollution of the land, subsurface, air water or streams, or require continuing expenditures in order to comply with law after the reclamation activities end, that the licensee remove from the premises or otherwise abate the conditions and indemnify the licensor from any claims arising from the same.

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Permit Access for Reclamation


Drafting Strategies


• » The licensor should retain the right to inspect the reclamation

activities and any other aspect of the licensee’s activities at on the licensed premises at any time.

» Especially where there is a base lease at issue, the agreement

should prohibit all coal mining by the licensee, even if such mining is incidental to reclamation activities, without the prior written consent of the licensor.

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Permit Access for Reclamation


Drafting Strategies


• » The agreement should pass through wheelage fees or any similar

fees or obligations on a proportionate basis, if applicable.

» Establish that not only is there no joint venture between the

licensor and licensee, but also that there is no regulatory relationship between the parties. Mitigate the risk that, if one party becomes placed on the Applicant Violator System (AVS) and permit-blocked, the other party could be blocked as well, based on the fact that their operations are on the same property. Placement

• n the AVS or any similar violator list can also be an event of

default under the license agreement.

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Permit Access for Reclamation


Drafting Strategies


• » The agreement should set forth a procedure by which the licensee

must give notice to the licensor of any notices of violation, and provide licensor with an opportunity to abate the same if the licensee does not remediate the issue in a timely manner.

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The End (for real)

» Avoid using forms (and form language). » Use subject matter experts. » There is no substitute for knowing your client’s business.

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Access Rights: Start to Finish

Kerry O. Irwin

Kerry.irwin@dinsmore.com (859) 425-1034

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