Coal Leasing’s Effect on Land Value

When a landowner leases his or her property to a coal company, what has that landowner really done? This is a question that needs to be asked anytime a landowner is confronted with a coal company representative. A coal company will normally send a smooth talking agent to persuade the landowner to lease their coal rights. While a landowner may be excited at the prospect of “winning the coal lottery”, I think it is important to consider the risks as well.

Would you want a mine under your farmland?

Recently one of our members was contacted by a major agricultural investor with interest in buying farmland in our area. Unfortunately, when the investor learned that a coal mine might open in the area, his interest  diminished. His view is that agricultural production is a better use of prime farmland, and that if coal comes into this area, we are going to greatly decrease our long-term wealth.

As the world moves away from coal as an energy source and toward an era in which food production and productive land will be more valuable, we ought to carefully consider anything that would compromise the long term productivity of our farmland, and which would encumber our property not only for ourselves, but also for our children and grandchildren.

Once you lease your coal rights, they are no longer yours. If you are either a long or short-term holder of land, this is an important event that needs to be considered carefully. Coal rights are part of the value of the property. Entering into a lease agreement does not guarantee that coal will ever be mined and the value of this asset ever realized. Instead, leasing creates an exception to the title of your property. For as long as the lease is in effect, a search will reveal an exception on your title. Many landowners have land that is “free and clear” of liens and encumbrances. Although a lease is not a lien in the sense of a mortgage or judgment, after filing with the Recorder of Deeds in Vermilion or Champaign County, the lease will become an exception on the title. This exception can span multiple generations of farm ownership.

There is no guarantee that the initial coal company that leases the land will not sell the lease to another entity. The smooth talking agent the landowner initially meets with will be the face of the lease for a short time, until larger forces will come into play. Eventually, larger, faceless companies might end up owning the lease – and if you don’t protect yourself now, the coal beneath your ground will be theirs to do with as they please.

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