December 13 2012
Forestry Rights were created by the Forestry Rights Registration Act 1983, which means the first wave of cropping relating to those rights is well underway. Since the passing of the Act there has been a substantial increase of forestry as a ‘crop’ on farms and also, more recently, there has been the introduction of the Emissions Trading Scheme (ETS) as it relates to forests.
Forestry Rights typically last 30 years or more. During that term the farm could change hands, be subdivided, or the Forestry Rights themselves could also have been sold or sub-contracted. It’s probably now timely to look at some of the issues that could arise. Forestry Rights generally fall into two categories:
- The joint venture type of Forestry Right where the proceeds of the sale of the forest are usually shared in an agreed percentage between the land owner and the forest owner, with the joint venture partners contributing more or less as follows:
- The land owner would contribute the land and pay the rates. The contribution of the land also would include access, and
- The forest owner would contribute the planting of the forest, pruning and other silviculture required and would carry out the harvesting.
Things to look out for
When looking at buying a farm with Forestry Rights registered against it, you should consider the following:
- What responsibilities would you have under the Rights and is there a cost attached to those responsibilities?
- Is there any ability to share in the harvest?
- Is the area of the forest and the access ways clearly defined?
- Have you looked carefully at the forest owner’s obligation, both while the trees are growing and at harvest?
Forest harvesting is a messy business and can be quite destructive of land, fences, access ways, etc. A harvest can go on for some time.
- Are there proper obligations in place for the forest owner to repair damage and reinstate fences, etc?
- Are statutory responsibilities such as OSH, fire and biosecurity issues properly dealt with?
- What are the forest owner’s obligations as far as replanting or removal of debris, etc?
In a subdivision, Forestry Rights will usually come down on new titles created, the same as other encumbrances such as easements or land covenants. Accordingly, it’s quite possible to have land subject to a Forestry Right but not have the forest situated on it; it may well be that the access way might still come through that property. Often, particularly in the earlier Forestry Rights, access ways are not clearly defined because the harvesting of the forest was so far into the future. There may, however, be rights to put access ways in through a property even if the forest is actually situated some distance away, or maybe even two or three properties away.
The other matter to consider is the ETS. Early Forestry Rights wouldn’t have covered issues that need to be dealt with now. For example, there is now potentially a cost to the landowner on the harvest of a pre-1990 forest.
In summary, the Forestry Right is a useful tool for separating the value that a forest may have on land or extracting further value from the farm. For a purchaser, however, the Forestry Right is another due diligence matter that needs attention pre-sale. A clear understanding of what the Forestry Right says and means is essential for the negotiation of a farm purchase.