The Value of Respect: And the Attendant Need to Avoid Landowner Fatigue

       Everyone wants options in life. No one wants to be forced into a given course of action by circumstances beyond their control. The same is true for landowners. A tract of land, whether it is the family farm, a multi-generation ranch, or an investment property bought in the hopes of providing a return someday, represents an important asset in the financial and operational portfolio of its owner. A prudent landowner will not only look for ways to maximize the value which can be derived from that tract of land, but they will also consider what potential effect their proposed or intended actions might have on the suitability of that tract of land for other future, unrelated uses whether conducted by themselves or a third party. The realization that at some point in the future, whether it be near or far off, it will be necessary to in some way dispose of the property in question should never be far from a landowner’s thoughts or decision-making process.

       This means, that in theory, the arrival of an unsolicited offer to purchase, lease, or in some other way utilize a tract of land should be of at least passing interest to a landowner. These offers can provide a final, financial return on an investment, they can provide an ongoing revenue stream that will allow a landowner to continue to own, use, and improve their current operations on the land, they can provide the landowner with a way to retain a tract of land in their family for another generation should that be their desire, and at the very least they can educate the landowner as to the current potential value that either the fair market or other users place on their tract of land. The first three possibilities listed above will be required by the landowner at some point during the ownership cycle and I have found that the latter is always welcomed by a conscientious landowner.  At some point in the ownership process a landowner could find themselves overextended or under some other form of financial duress and the passive revenue stream offered by oil and gas production or wind turbines situated on their land can be a lifeline that allows them to eventually return to profitability. These activities, when properly sited and prudently and efficiently operated, can enhance the value of the tract of land thereby earning the landowner a higher sales price should they eventually choose to alienate themselves from the property. A landowner should look forward to the arrival of a competent, professional, and well-intentioned land professional at their gate.

       Unfortunately, as with most things in life, too much of a good thing is not necessarily a good thing.  Many landowners across the United States that have acreage deemed valuable by any one of several industries as fitting within their permitted project parameters have found themselves under siege by land agents and developers seeking to lease or purchase their acreage. While every landowner wants to know that their asset has value and that there is a readily available means by which to profit from that asset, no landowner wants to be constantly barraged by multiple unsolicited offers over the course of several months or years. That, however, is exactly the situation that many of America’s landowners find themselves in.

       The vast majority of these landowners did not ask to be put in this position, nor do they particularly enjoy the experience and attention. Most of America’s landowners also either occupy or directly operate for-profit endeavors on the land they own. This means that they have jobs, tasks, and chores to complete to satisfy the needs and demands of their current operations. These unsolicited offers, and the not unsubstantial amount of time it takes to review their terms and communicate with their offerors, can represent a serious drain on the time of the landowner; time that was in short supply to begin with.

       When dealing with a rancher or farmer, a land professional or developer needs to be careful to understand what stage of the livestock or planting/harvest program they are about to engage. For several weeks prior to harvest time and then for the several weeks during the harvest itself rural communities will typically work twelve to sixteen hours a day making sure the necessary equipment is in place and operating and all harvest related tasks are accomplished. This leaves no time to consider unrelated or extraneous endeavors.  My suggestion is to plan the timing of your approach and offer around their needs and schedule and not expect them to adapt to yours.

       America’s rural landowners often do not work standard, nine-to-five jobs. Instead, their work is task oriented and continues until it is complete.  With what little time is leftover most individuals would rather spend it at home with their family, at church, or at a kid’s school or sporting event.  This means that when you are asking for their time to review and consider your offer you are taking time away from either their profitable business activity or their family.  My suggestion is to take as little of their time as possible and to be as efficient with the time that you do take as you possibly can be.  If you fail to act in this manner, you run the risk of becoming too much trouble for whatever worth or value you might otherwise bring. 

       As an aside, it is important to remember that the landowner likely does not care about what you are trying to do.  Your financial return is not theirs.  Your crusade is not theirs.  Once they have made the admittedly emotional decision to separate themselves from the land (assuming the land is owned by an individual or family and not an investment group) what remains is a financial decision to determine whether the offered return is worth the loss of use, enjoyment, and generated value from their land.  Rarely have I found it worth a developer’s time to try and convince the landowner of the value and moral certainty of their proposed endeavor. As with most things in life it is usually best to keep sensitive personal or politically charged matters about which reasonable people can differ out of a purely financial decision.

     The consequence of the current atmosphere, wherein some developers act in a thoughtless, rapacious, and inconsiderate manner has led to a growing sense of landowner fatigue.  From the early 2000’s through 2014 the oil & gas sector ran voracious lease plays in multiple basins around the nation, the renewable sector has been aggressively greenfielding throughout the lower forty-eight for over a decade, and now hard mineral miners are expanding their operations off of federal land and onto private fee acreage as the nation tries to bring back the production and extraction of necessary natural resources.  They’re done with the current land gold rush.  Before you even get a chance to explain how you are different from the last or next developer, they have already shut you out.  It is normal for us to be the fifth or sixth developer to contact a well-situated landowner.  In one instance we were the fourteenth!  We have had a landowner pick up the phone just to yell at us for something the last developer did to them and then hang up without ever actually speaking to us.  You can have the best offer on the table and be the most qualified candidate among all those who have submitted an offer, but if you cannot get past a shut down and angered landowner, you are done before you can start.

       So, what can be done to respect the time and sanity of the landowners while still allowing a developer the opportunity to proffer their terms and offers?  How does a reasonable and professional land agent thread the line so that their offer gets the favorable reception and follow-on consideration they would hope for?   I would suggest the following:

1. Do Your Homework Before You Make Contact: Before you reach out and actually speak with the owner of the land in question you should at least have taken the time to develop a plan. No landowner wants their time wasted with the fishing expedition. No landowner wants their temperature taken. Their time, just as is yours, is valuable. Prior to making contact you can utilize the vast assortment of online and remote tools that allow you to identify, review, evaluate, and prioritize various tracts of land from a distance so that you have a sense of whether the landowner’s tract of land would be useful to your intended project. You can research news sites and online blogs to determine the overall sentiment toward a given industry or activity before making contact. You should have an idea as to what operations, structures, and onsite investments the landowner already has existing on their tract of land. You should be ready with a plan forward should you get lucky and find a landowner who is willing to consider your offer. Nothing is worse than finding a motivated landowner but because your overtures were premature you cannot advance the conversation with them for a significant period of time.  As with any relationship first appearances matter. The tone and tenor of the discussions and negotiations that follow will be set by the first interaction between a developer and an identified landowner.  You need to prepare for and be ready for that first interaction.

2. Ask Permission for a Convenient Time to Speak or Show Up: Let’s face it, if I’m not a family member, a friend, or someone that you have met and invited to your house, then you do not want me showing up unannounced at your front door. Following the tenets of the original golden rule, if you don’t want me doing something to you, then you should assume that your identified landowner does not want that same thing done to them. No landowner in rural America wants to look out across their property and see an unannounced stranger standing at one of their gates. No landowner wants to hear a knock at a door after dark when their nearest neighbor can be a quarter to a half a mile away.  In this nation there has always been a perceived notion of privacy when in your home or on your property. That notion was eventually deemed an inherent right and then specifically protected by the Fourth Amendment to the Constitution of the United States. Have the courtesy to reach out to an individual either by phone or by e-mail and ask for permission to meet in person. By now, there are very, very few individuals who do not always have a smartphone on their person. It is not an impossible matter to be able to get in touch with the individual owning the land. Every individual I know who has any tenure in this business, myself included, has a story about staring at the business end of a firearm during an unannounced home visit. My advice is to start negotiations off on the right foot and show the landowner the respect of asking for their time rather than assuming you have a right to it.

3. Have Your Documents in Order Before You Go: You would think this would be obvious, but it is unfortunately the most common source of delay at the outset of a project I have come across. When land agents speak to landowners, whether it be as part of an oil and gas development project, preemptory to siting a solar or wind farm, or seeking to explore for and extract a hard mineral resource on or under the landowner’s property, they are not doing so on a whim. These are part of sophisticated acquisition outreach programs that will inevitably result, if successful, in a detailed and comprehensive binding legal agreement between the parties. It is eminently reasonable for a landowner to want to see a draft agreement after speaking with the land agent. There is no good cause for a delay that can last between weeks and months before such a document can be provided. Before the outreach program is initiated at least a template or draft agreement should be created and approved for use during initial landowner outreach activity.

4. Know What You Want from the Landowner: Know what you were asking for from the landowner before you speak to the landowner. Are you going to buy the entirety of their acreage and thereby force them to cease operations and remove themselves from the tract and possibly the community? Are you only asking for a portion of their current land holdings? Will your operations have to coexist on the same tract of land?  How much access will you need to their property and what type of equipment and personnel will you bring on to their land?  Most individuals are visual by nature. Have a basic map prepared showing their tract of land and what portions of it you would like to utilize for your project. At this stage you do not need sophisticated engineering and design layouts, but you should at least be able to identify the general areas of the landowner’s property that you will require (assuming you are not trying to negotiate for the entirety of it).  A land agent or developer will look somewhat foolish if all they can tell a landowner is, in essence, “We think we’re going to want to do something on some portion of your property, but we don’t know exactly where we need to be yet.” You come across as unprepared and risk wasting their time.  Remember that the landowner is already operating on that same tract of land and to properly consider your offer they will need to understand the impact your proposed operations will have on theirs.

5. Know What Terms and Value You Can Offer: If you visit rural America and take the time to linger in a coffee shop or Dairy Queen you will no doubt eventually hear locals discussing the price that someone was willing to pay for some tract of land. There are a few things in rural America more talked about or better understood then the basic market value of land. It doesn’t matter whether it’s pastureland, irrigated farmland, dry farmland, a creek bed tract, or just off the main road to town, there is nothing quite so well understood as the value of land. After all, the land is not only where they reside but also where they derive their income and operational revenue. More than that, it is where they store value for later generations. There are no brokerage accounts or 401K plans, there is the value tied to the land itself.  In such a place it would be wise to have arrived at a valuation and follow-on fair offer terms prior to making contact with the landowner. No benefit is served by delaying at least an introductory discussion regarding financial terms. If you’re proffered financial terms are fair and reasonable given the activity you plan to site and operate on the tract of land, then your offer will immediately pique their interest and bring you to the front of the line when compared to other competing offers. If your offer is substandard and not a fair representation of the tract’s value, then there is nothing you can say or do, and there is no relationship you can hope to develop, that will allow you to overcome this primary flaw. There is no excuse for not having taken the time to understand the general fair market value of a tract of land in the area in which you are operating.  Beyond this, you must also reasonably ascertain the likely fair value for the specific tract of land you are trying to acquire as it relates to its current landowner and their particular operations.

6. Don’t Play “Goldilocks:” Finally, if and when you have managed to do all of these things, when you have presented yourself as a reasonable, professional, and trustworthy counterparty, when you have offered a draft of the instrument you wish to negotiate, when you have shown the landowner what portions of their property you wish to use and have explained what effect your operations might have on theirs, and when you have made a fair financial offer, you need to act quickly on the acceptance of your offer and terms by the landowner if and when given. All too often I see developers, companies, and land agents bringing negotiations right to the point of execution but then pause. They begin to reconsider not whether this is a good and fair deal or whether this tract of land would be a suitable addition to their project, but they instead pause while making attempts to ensure that there is not a better option somewhere out there. I call this the Goldilocks Syndrome. Too many entities are convinced that there is always something better just over the horizon, but this is very rarely the case. More often than not the tract of land just over the next hill is different, but not better, and the only thing accomplished by this last-minute exercise is to irritate the original landowner to such an extent that they either begin to renegotiate the terms of their deal or walk away from it entirely.  A negotiation is essentially a series of verbal promises made between two parties. When those promises are put into a written legal agreement that accurately reflects what has been discussed and negotiated, it should be exceedingly difficult for either party to then refuse to execute the agreement. If you are fortunate enough to be able to secure an agreement from a landowner, do not put the execution of its binding written form on hold as you shop around hoping to do better.