Electric Utility Easements
Posted by , on May 4, 2015
In order to survey, construct, operate, and maintain their lines over a landowner’s property, electrical utilities require an easement. Much like crops or livestock, easements provide a potential source of income for Indiana farmers and landowners. However, property rights – not money – should be the primary focus of landowners who negotiate with electrical utilities for the sale of transmission line easements. While an easement is simply the right to use another’s land, it does constitute an interest in the land – one that limits the landowner’s rights on the easement property. Easement agreements should therefore not be entered into lightly.
An easement is simply an agreement that allows someone to use the land of another party for the specific purpose stated in the easement documents. Electric power easements are agreements between a landowner and a utility company that allow the company to use part of the owner’s land for activities and equipment related to providing electricity. However, the landowner still retains ownership of the easement area on their property despite the fact that some rights have been given up. An easement is created once the easement agreement is signed by the landowner. And once it’s filed in the county recorder’s office it “attaches” to the property – meaning that the public is on notice that it exists. The agreement lists the current owner as the grantor, or giver, of the easement, with the power company shown as the recipient. An easement agreement includes a description of the property and the easement area, with the easement area being that part of the property affected by the agreement. The description might be words that describe the property’s measurements or some other identifying reference, such as the recording information for the grantor’s land deed, the property tax account number or the street address.
While compensation is certainly important, landowners should not overlook the rights the company is seeking to purchase. A utility that approaches landowners requesting permission to install transmission lines across their property will often present a “standard” form easement agreement which is typically very broad, somewhat vague, and almost always slanted in the utility’s favor. These proposed agreements likely allow the utility to conduct activities on the property that landowners may find undesirable. Reviewing an extensive checklist of issues will help landowners avoid potential disputes, a few of which are discussed below.
A broadly worded easement may usurp the landowners’ future income opportunities. For example, landowners should never grant an exclusive easement. Instead, they should retain the right to grant joint use of the easement to other entities, provided it does not interfere with the utility’s usage. If the easement allows the installation of communication equipment, it should be limited to use by the utility. Otherwise, the utility could install equipment such as commercial cell towers for which the landowner would not receive separate compensation. Not knowing what the future may hold, it’s conceivable that an easement which grants too much “rights” could allow the utility fly light aircrafts across the easement.
Negotiations should also ensure that the landowner’s right to use the easement and surrounding property is protected. The easement should be limited to installation of a single transmission line by the specific utility. Otherwise, a utility could install multiple lines, relocate lines, allow private utility lines, or build additional facilities within the easement without additional compensation. Landowners should also limit access solely to and through the easement by employees and contractors of the utility. Temporary access outside the easement area should require additional compensation. To prevent interruption of farming operations, the landowner should require notice of entry to the easement after the construction period. And during the construction period the utility’s activities should be limited during the planting season.
The landowner should never warrant title to the land, rather, it should simply provide that the utility takes title to the easement solely at its risk. In calculating compensation, landowners should account for future damages to the property as well as damages outside the easement. In determining damages, consider what the easement and surrounding property will look like after installation of transmission lines. Consideration should also be given to longer term damages such as reduced production due to compaction, inconvenience and lost productivity from farming around towers and poles, etc.
Easements can be either temporary or perpetual – an important distinction for tax planning purposes. If the easement is temporary, the income received will likely be treated as ordinary income. If the easement is perpetual, the income will likely be taxed as capital gains income. Most transmission line easements are perpetual, so the tax effects to the landowner should be factored into the negotiated compensation.
What happens if negotiations with the utility are unsuccessful? If the landowner and utility cannot come to terms for the purchase of an easement, Indiana law allows electrical utilities to acquire the property interest by eminent domain, also known as condemnation. In condemnation, third party appraisers will determine the fair market value of the easement property, and the landowner will have an opportunity to contest the named price. During this process, the utility and landowner will incur fees for attorneys and appraisers and must follow statutorily prescribed procedures.
Landowners who hold out for optimal terms during the negotiation of an easement may end up losing negotiating power if the utility is forced to pursue the more expensive and time-consuming route of condemnation. In addition, a judgment in a condemnation proceeding will give the utility the right to construct its transmission lines in any reasonable manner which furthers the public use of the condemned property. In general, private negotiations may increase a landowner’s chances of obtaining favorable terms for use of the easement. Eminent domain, on the other hand, forces a utility to pay market value for an easement. Eminent domain might also be preferable to signing an easement agreement which contains onerous terms, such as indemnification of the utility or use restrictions.
No matter the route landowners take in arriving at an easement agreement, it is important that they carefully review any offers proposed by a utility. The language in the first easement offered will generally not be favorable to the landowner. Although an attorney is not required to negotiate an agreement, landowners’ interests are best served when they work closely with an attorney who has knowledge of agriculture and real estate law before entering into an easement because, despite what they may say, the utility certainly isn’t concerned about what is best for the landowner.
**Reiling Teder & Schrier, LLC is an Indiana Limited Liability Company. The information contained in this website has been prepared by Reiling Teder & Schrier, LLC for informational purposes only, and is not legal advice. The information on this website should not be relied upon to make any decision, legal or otherwise. If you have any specific questions or inquiries regarding any of the information contained in this website, you should consult with an attorney licensed in your state. The information contained in this website pertains only to matters of Indiana law and the laws of other states may be completely different from the laws of the State of Indiana.