For years landowners and timber buyers bought and sold timber on a handshake basis. Just as the world has become more complex, so has the transaction of buying and selling timber. One of the most dangerous things a landowner can do is to sell his timber on a handshake basis, even to individuals he has known and done business with for years. Many landowners, and for that matter, many timber buyers, have come out of a sales transaction that lacked a formal, written agreement...unsatisfied because the parties had different expectations of what they wanted from the sale. The best way to help prevent misunderstandings is to have good communication before the sale and then document that communication in a timber sales agreement so all persons know their responsibilities and what is expected. A well-written contract will save the purchaser and seller time and money by eliminating problems that can result in litigation. It will also preserve goodwill between the parties.
The two most common timber sales agreements used in the South are the sales contract and the warranty timber deed. Most often the sales contract conveys to the buyer the right to cut standing timber. The actual title to the timber passes to the buyer when the timber is severed from the stump. Where a timber deed is used, the title to the timber passes to the buyer when a properly executed deed is delivered and recorded.
A timber sale, regardless of type or size, should have a written, legally binding, and mutually agreed arrangement. This agreement, or contract, is to protect all parties involved in the transaction. The written timber sale agreement may be lengthy and complex or short and simple, but always expresses the expectations, the wishes, and the responsibilities of each party involved. It specifically states what each party can and cannot do and serves as a mechanism to resolve any disputes.
Each timber sales agreement is different, since each and every timber sale is different. However, there are a number of common provisions that should be included in every sales agreement. It is important at the time a sales agreement is developed that the landowner get professional assistance from a forester and an attorney in developing any sale agreement. The following sections in this publication identify and discuss certain information you need to include in any timber sales contract.
In the description of the timber, include an exact location of the sales area and a legal description of the area. Outline in detail how the corners and boundaries of the property are marked or designated, and if not, note who pays to locate the corners and boundary lines. In the event the boundaries of the cutting area differ from the property boundaries, include an exact description of how they are marked. In addition, clarify the description of the adjacent ownerships, and any existing or potential problems or disputes with these ownerships should be detailed.
This section goes along with the clauses for arbitration and protection of the property. This clause details the penalties for nonperformance of the terms of the contract. Penalties would be invoked when the logger does acts such as cutting nondesignated timber on a selective-cut or thinning or when the logger does not cut the designated timber on the same type operation. It also provides penalties for stand damage incurred during the harvesting operations when it exceeds allowable limits; too, it outlines those penalties for damages to permanent improvements (such as roads, culverts, or bridges) by the logger.
This clause also needs to make provision for the payment of the penalties and outline the setting up of an escrow account or performance bond to enforce these provisions.
The above items address only those essential clauses that should be in a timber sales contract. There are a number of points that can be included in a contract. One consideration is fire protection. Many older contracts included a clause that indicated who should bear the loss, or who bore the responsibility for the prevention and control of any wildfires that broke out in the timber stand during logging operations.
Another item may be one that provides for notification of the seller when cutting starts and stops, so that pre- and post-harvesting inspections can be performed. In addition, this clause can require a pre-harvest conference by all parties involved in the contract. In this meeting, include the logger and landowner so they can meet face-to-face. While optional, this provision can prevent misunderstandings, because it helps each party fully understand the contract and its requirements.
Also, define the ownership of by-products such as tops, limbs, uncut timber, etc. This is especially important in large timber where the tops and limbs could contain a significant volume of pulpwood. Is the buyer just buying the sawtimber portion of the tree or the whole tree? The landowner may wish to market his top wood separately.
In Mississippi it is an accepted practice for the buyer to pay state severance taxes. If there is a question about who is to pay, clarify it in the agreement. This will protect the landowner in case a dispute arises about payment of these taxes.
A provision that can prevent a number of problems is one that provides for or against the assignment of the contract to a third party. In many cases, when an independent timber buyer purchases the timber, he resells the timber to a manufacturer. If the seller has no control on assignment or reassignment, the contract the buyer and mill enter into may be quite different from the agreement with the original buyer. You may find, that, while you were fully protected by the original agreement, you have little control over the sale.
In case there are problems during the contract period, have provisions for the extension or termination of the agreement. In some cases, where weather or other factors prevent the buyer from cutting the timber, the landowner may wish to grant an extension to the contract period. Situations may occur where either party may wish to terminate the agreement. Outline why and how the contract can be terminated and have provisions for damages and/or buyouts.
In the case of a pay-as-you-cut sale, you may want to include a clause that details specifications and requirements for the scaling and measurements of the timber to be sold. This may include designation of log rule, volume table, or weight conversion factors that are to be utilized...and where, when, and how the timber is scaled or weighed.
Another provision to consider is one that details provisions to regenerate the property being harvested and to keep it in production. Many companies have assistance programs available to landowners from whom they purchase timber. These programs may include site preparation, seeds or seedlings, and planting assistance. This is often done on a cost or fee basis by the buyer. If included, this clause should describe what each party is to do and who pays for it.
Most buyers are hesitant to sign a contract they feel is too restrictive. Yet, as a professional, a buyer will readily agree to a contract that can help him supply timber to his mill efficiently...with a minimum of problems. It is in the interest of all parties involved to develop and nurture a straightforward, friendly working relationship.
By using your marketing team of your forest consultant and attorney, you can have an arrangement that will be agreeable to and protect all parties involved. This is the keystone of a productive and profitable business relationship and ensures that the landowner walks away from a timber sale with a sense of satisfaction.
By Winston Savelle, Area Extension Forestry Specialist, and Dr. William D. (Denny) Eshee, Professor of Business Law/Forestry, Mississippi State University
Extension Service of Mississippi State University, cooperating with U.S. Department of Agriculture. Published in furtherance of Acts of Congress, May 8 and June 30, 1914. Ronald A. Brown, Director