Replies to This Discussion

Permalink Reply by Michael Allen on May 17, 2013 at 4:31

The appraiser would look at the before and after value based upon a host of land features also based upon the current use and zoning. No land becomes "totally useless". Pipelines running down a property line for example may be included in the county/city "setback" rules and not affect permanent improvements at all.

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Permalink Reply by Two Dogs, Pirate on May 17, 2013 at 4:32

The 42 inch line that came through Central Louisiana a couple of years  back, they were paying around $38,000 per acre for ROW.

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Permalink Reply by Michael Allen on May 17, 2013 at 4:40

The question on the road is a different situation entirely. If it is a private business wanting a road through your property, I suggest a 20 year Licence Agreement with an annual payment calculated by the Cost of Living Index each year, but no less than a 2% increase. At 20 years, the licence can be renewed but at the going rate at the time with the same stips. I would base the annual payment at 25% of fee value per acre per year with the annual COI increases. I would have a number of legal conditions that must be met each year including the lessee paying the taxes for that portion of the property lost to the road. Alot more conditions, but that's another story.

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Permalink Reply by Joe Aldridge on October 16, 2013 at 11:44

Andrew,

"I don't know the practicalities of negotiating ROWs at all, but at least in the abstract it seems like it would better to sell the strip of land to the company rather than grant a servitude for a pipeline or right of way. You don't have to pay property taxes on that land in the future, you get to keep the minerals forever (practically), and you don't have the potential headaches with removal if the pipeline/right of way is extinguished or abandoned".

I have a problem with the idea of selling the property to the pipeline company. My understanding is that the rest of the property that you hold in that tract is now valued at the sale price of that parcel and the property tax for the rest of that tract would rise to the amount of the sale. So if the rest of the tract is 100 acres and its now valued at $10,000 per acre then the value of the property is $1,000,000. At 150 mills then the property tax to the Parish would be $15,000 per year from that sale on. That would not be the case with a servitude. A servitude is a burden on the property. Also, If the pipeline is abandon in the future do you want someone owning property in or across your property that you have no control over? 

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Permalink Reply by Andrew on October 17, 2013 at 14:04

Joe,

You make a couple of fine points, as usual.

My understanding is that the rest of the property that you hold in that tract is now valued at the sale price of that parcel and the property tax for the rest of that tract would rise to the amount of the sale. So if the rest of the tract is 100 acres and its now valued at $10,000 per acre then the value of the property is $1,000,000. At 150 mills then the property tax to the Parish would be $15,000 per year from that sale on.

I have never heard of a tax assessor giving this effect to a sale or condemnation of land for a pipeline (or road for that matter), although it wouldn't surprise me too terribly much to hear of it happening. Regardless of what a tax assessor actual does, I don't think the situation you described would be appropriate appraisal practice. In fact, it seems downright illogical for an appraiser to say that 100 acres of swamp (for example) is actually worth $XX per acre because that's what was paid by a pipeline company for a narrow strip running through it. A strip of land used by and for an interstate pipeline wouldn't be "comparable" to 100 acres of land on either side of it, and the markets for these two property types would seemingly be quite separate from one another. If anything, the existence of the pipeline, no matter what was paid to put it there, should diminish the market value of the surrounding acreage if it has any effect.

Which leads to me your second good point, asking what happens when the pipeline company doesn't want that strip anymore. That hadn't occurred to me, but if someone cared to hold on to the rest of the property for the long haul, this would be a heck of a drawback to the outright sale. Actually, that would probably be worse than the ordinary case of a pipeline company "abandoning" a pipeline, because the former owner wouldn't have the right to make them remove it.

So, I guess my point from earlier assumes that the landowner wouldn't be particularly attached to the land (or at least that the pipeline wouldn't run through the middle of their property). I suppose that unless you were already planning to part with the property sooner rather than later, the (pipeline) servitude route might make more sense.

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Permalink Reply by Michael Allen on October 17, 2013 at 14:10

Most pipeline companies do not want to buy the property along their pipeline route. I have never seen that in 30+ years in this business. On the other hand I have seen alot of that in the power line transmission world, especially in the big farming country. Reason being that farmers can not, or have a big problem with farming around towers and guy wires. What usually happens is the landowner will selll their property to the power company and then lease it back for $1.00 and acre/year for ever. so that way, the landowner isn't paying taxes on property he can't use or can't use as well as before the towers/guy wires affect his ability to farm.

Pipelines are a very different story. Once underground, except for permanent improvements, almost every other situation is feasable for encroachment if temporary or moveable.

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Permalink Reply by Joe Aldridge on October 18, 2013 at 2:00

Good Morning Andrew,

I can attest that in East Baton Rouge Parish the assessor takes any sale of any property to be the current value of the property. I had a friend that pestered me for years to sell him 4 acres of land. We finally did. As it turned out the FEMA Flood Maps were wrong and the property, as THEY say it is in a "Flood-way". It has never had over 6" of water on the property and that was in 1983 which was the record flood. FEMA now wants any structure built or installed to be 6' above ground level. So now according to the Assessor the rest of the tract, Luckily, only about 8 acres, is now valued at 80,000 dollars. At 150 mills the property tax on that tract is $1,200 yearly. This Assessor does not care what the restrictions are as far as flood or whatever - Its the current value of the land as sold at a point in time and as far as I'm concerned that would mean any land SOLD to a pipeline company or anyone for any purpose. 

I have an interesting case though. I had a pipeline installed on my property without a right-of-way agreement. It was a clear trespass. They ended up settling with me for a yearly rental. I don't understand why more right-of-ways are not negotiated from the standpoint of a rental of property rather than a one time payment.It would seem that if the right-of-way is abandoned  in the future then for the rental to go away then the pipeline would have to be removed. Also, a pipeline is a clear burden on the property and is on going. A rental agreement would be much more equatable than a one time payment.

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Permalink Reply by Michael Allen on October 18, 2013 at 2:17

Alot of truth in your one-time payment vs an annual rental payment. However, if the pipeline company has eminent domain power, then no such luck, a one time payment. I assume that the pipeline you mention did not have the power of eminent domain, otherwise, they would have just condemned it in place.

A non-eminent domain pipeline can be negotiated in either an easement, lease or license agreement, that latter two can be an annual rental payment with an ending date with clauses for extensions and annual cost of living increases, etc. A pipeline with condemnation authority will try to negotiate at fair market value but in the end they will take it regardless for a one time payment.

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Permalink Reply by Joe Aldridge on October 18, 2013 at 3:27

Michael,

It was a NG line that supplied GP Paper Mill at Port Hudson to Florida Gas Transmission. I went back the Sunday morning that they were coming on my property and tried to warn them. They sent a Sheriff's Deputy to tell me to leave my property. So Monday morning I was on the phone advising them that they had trespassed on my property and installed the line. They subsequently settled with me for the yearly rental. The interesting thing is the property is only 300 ft wide at that point and they laid the line  within 20 ft of the property line. I found at that time that a couple of years earlier Koch had also laid a line on the property in the same area and they paid me a lump sum to clear it. I felt that it would be difficult to go to court after the line had been there for a period of time. So I settled. Later a company laid an optic line across the property and when confronted by a neighbor they removed it by crossing the highway ahead of us and running it on State Hwy right-of-way to get around paying for servitude. 

I understand that there is eminent domain. However, the concept of a lump sum payment does not seem fair to the land owner with the ever increasing value of land. Not only is the land owner stuck with a burden on the property in the form of a servitude but that servitude is bought and paid for at today's prices not future value. 

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Permalink Reply by Michael Allen on October 18, 2013 at 3:48

Under fair market value, one can not predict future value and so the courts can not speculate a value to go up or down. Same way in a court, the judge can not change a pipeline route from one landowner to another. In your case, the fault lies with the survey firm and the land agents involved. In addition to going after the pipeline company, I would have also sued the survey firm and the company that the land agent worked for. Again, if no eminent domain, you could have gone to court and had a good settlement plus attorney fees. If the company did have eminent domain, then I am very surprised that they settled for an annual payment.

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Permalink Reply by Andrew on October 18, 2013 at 5:46

Joe,

Whether it is better to have a long-term lease or a servitude is probably more of a financial question than anything. I agree in theory that an annual rental may be better in many circumstances, the time-value of money has to be taken into consideration. Also, the pipeline company could also quit paying the rent and terminate the lease long before the rents exceeded the lump-sum. Personally, or me to do lease over servitude, the guaranteed rentals would have to greatly exceed a lump-sum offer for them to be more valuable to me than the money today. Again, that's really a financial decision.

As far as having the pipeline removed at the end of the agreement, your rights would be the same under either a lease or a servitude agreement. However, all else being equal, owning property encumbered by a servitude is better than being a landlord. It's also less onerous for the pipeline company to get a servitude than to be a tenant, and so usually they're not willing to do a lease when they have takings powers as a bargaining chip. Your situation was somewhat unique because of the trespass, and I can imagine them being more receptive to a lease if it settled potential litigation. 

I definitely see how the BR Tax Assessor made the adjustments that they did in your case. Depending on the type of properties, a sale of a part of a property could be the best possible indication of the value of the remainder. But you can't say that's true as a rule. If the highest and best use of the parcel sold is different from the rest of the property (i.e. a pipeline strip running through the middle of timberland), then it is an apples to oranges comparison. 

And of course, keep in mind that the Tax Assessor could always be wrong. If you can prove that the fair market value of your 8 acres in less than $80,000, you're entitled to an adjustment to your assessment no matter what the Tax Assessor thinks.

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