Understanding and Negotiating Pipeline Easements

“Shale Oil and Gas Development” Fact Sheet Series

Understanding and Negotiating Pipeline

Easements

Peggy Kirk Hall

Director, OSU Extension Agricultural & Resource Law Program

Christopher Hogan

Program Assistant, OSU Extension Agricultural & Resource Law Program

Introduction

Pipelines play an important role in the development of Ohio’s shale resources. As shale development in Ohio

continues to expand, so does the need for pipelines that transport shale gas resources. Companies who want to

construct a pipeline across their properties may approach many landowners. Landowners facing this situation will

benefit from understanding and negotiating the pipeline easement, also referred to as the pipeline “right-of-way.”

This fact sheet explains pipeline easements and reviews issues and terms for landowners to consider when

negotiating an easement. For additional information on pipelines, pipeline regulation and pipeline construction see

our pipeline fact sheet series on OSU Extension’s shale education library at http://shalegas.osu.edu.

What is a Pipeline Easement?

Generally, an easement is a legal interest that allows someone the right to use another’s property for a certain

purpose. A pipeline easement specifically gives the easement holder the right to build and maintain a pipeline on a

landowner’s property. It doesn’t grant the easement holder actual ownership of the land, just a right to use the land

for pipeline purposes. The easement “runs with the land,” meaning that it remains on the property and applies to all

future property owners. The easement should be in writing, signed by the landowner and recorded with the county

recorder. Typically, a pipeline easement is permanent and does not have a termination date, although parties can

agree to an easement that lasts for a certain period of time. Note that the term “right-of-way agreement” has the

same legal meaning as the term “easement,” and that many refer to the piece of land that is the subject of the

easement as a “right-of-way.” For this fact sheet, we will use the term “easement” rather than “right-of-way.”

Pipeline Easements and Oil and Gas Leases

An oil and gas lease might include pipeline easement rights as a provision of the lease. For this reason,

landowners should examine existing oil and gas leases to determine if pipeline easement rights already exist. If so,

the landowner should understand the extent of the easement rights granted in the lease. For example, the lease

may grant the oil and gas company the right to establish gathering lines anywhere on the lease property. Or an oil

and gas lease might prohibit the landowner from granting a pipeline easement to another company.

Landowners who have existing oil and gas leases should carefully review the leases and consult an attorney for

clarification of any language that refers to pipelines. Landowners who are currently considering an oil and gas

lease should consider removing any references to pipeline easements and negotiate those rights in a separate

pipeline easement agreement.

OHIO STATE UNIVERSITY EXTENSION

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Pipeline Easements and Eminent Domain

Eminent domain can play an important role in the development of pipelines and the negotiation of pipeline

easements. If a landowner doesn’t agree to grant a pipeline easement to a development company, the company

may try to acquire the easement through the power of eminent domain. Ohio has a specific law in Ohio Revised

Code 1723.01 that allows a private company that is organized “for transporting natural or artificial gas, petroleum,

coal or its derivatives … through tubing, pipes, or conduits” to do two things:

1. To enter upon any private land to examine or survey for pipelines, and

2. To use eminent domain to take private land, or any right or interest in private land, as is necessary for the

pipelines.

Some argue that the statute only grants eminent domain rights for transporting gas, and does not extend the right of

eminent domain for the transport of gas derivatives such as ethane. While there is not strong legal support for this

argument, we can expect to see litigation on this issue in the near future.

To use eminent domain, the company must prove that the company and landowner were not able to reach an

agreement about granting a pipeline easement and that the taking of the pipeline easement is “necessary.” The

company must follow the procedures for eminent domain laid out in Ohio Revised Code Chapter 163.

For an interstate pipeline that runs between Ohio and another state, federal law could allow a company to use

eminent domain to obtain land from unwilling landowners. Federal law states that a company may acquire property

rights for a gas pipeline if the company has obtained a Certificate of Public Convenience and Necessity from the

Federal Energy Regulatory Commission and the company and landowner have not been able to agree on

compensation for the pipeline easement. See 15 USC §717(F).

Pipeline Easements are Negotiable

While a landowner will likely receive a “form” or “model” easement from a development company, the

landowner should consider this form easement as a starting point for negotiating easement terms rather than as a

final offer from the company. It is acceptable to respond to the company’s easement offer with additional provisions

that address the landowner’s needs. The assistance of a knowledgeable attorney throughout this easement

negotiation process can be invaluable and well worth the investment.

Before the pipeline easement negotiation process begins, take into account three key areas of concern:

1. Impact on property. What effects could there be on the property due to the construction, maintenance and

long-term presence of the pipeline, and are there ways to reduce those impacts?

2. Income. How much compensation should the landowner receive for the use of the land and for the impacts

that will or might result from the pipeline?

3. Eminent domain. Does the company possess the potential power of eminent domain, and is the company

willing to pursue eminent domain?

Pipeline Easement Terms

The following explains many of the key terms to consider in a pipeline easement. This list is a summary, and

does not include all of the provisions that might exist. A landowner should understand each provision and

determine whether it applies to the landowner’s situation and should be a point of negotiation with the development

company.

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Location of the Pipeline

What is the company’s proposed location for the pipeline? A landowner should carefully review the proposed

location and consider its impacts upon the property. Are there areas of the property that the landowner does not

want to disturb, such as important habitat, timber and soil resources or residential use areas? If so, the landowner

should try to negotiate the location to avoid these areas. Because an easement usually prevents a landowner from

building new structures over the easement area, the landowner should also try to determine where buildings or

structures may be desired in the future and ensure that the easement will not cross those areas. Additionally, the

landowner might consider asking the company to locate the pipeline parallel to property boundaries or other existing

easements to reduce land use conflicts and ensure efficient land use.

Once the company and landowner agree to the pipeline location, the easement document should specify the

exact location of the pipeline and the boundaries of the pipeline easement rather than using broad or general

language such as “across the landowner’s property.” Problems or changes with the proposed route might occur

during construction. To guarantee accuracy of the pipeline and easement locations after the pipeline is in place,

the landowner can request that the company provide an “as-constructed” survey following the construction of the

pipeline.

Pipeline Depth

Companies today place most pipelines underground. Although Ohio law requires that pipelines be buried at

least 24 inches below the land surface, the landowner may want to negotiate a lower depth. Farmland owners

should request additional depth to ensure that the pipeline will not interfere with crop production and other farming

activities that might occur on the surface. The recommended depth of a pipeline on farmland is 48—60 inches

below the land surface. Pipeline depth is measured from the land surface to the top of the pipe.

Width of the Easement

The pipeline easement width may range from 50 to 100 feet or more, depending on the type and size of

pipeline, the nature of the landscape and construction and maintenance needs. Easement width might include land

that is needed to be able to construct the pipeline, or additional width for construction could be addressed in a

temporary construction easement, explained below under “construction rights.” The easement document should

state the width in specific terms rather than in general terms such as “a width as is necessary to support a pipeline.”

Construction Rights

There are two approaches to addressing construction needs for the pipeline. A company might include

construction needs when determining the width of the easement. In this situation, the landowner would grant

construction rights as a permissible use of the pipeline easement and the width of the easement would be wide

enough to accommodate construction activity.

Another approach is to negotiate a temporary construction easement in addition to the pipeline easement. The

temporary construction easement allows the company access to additional land along the pipeline easement in

order to install the pipeline. When construction is complete, the temporary construction easement terminates and

the company’s rights of use “shrink down” to a lesser width that is designated as the pipeline easement. Temporary

construction easements are often included in the same document as the pipeline easement.

For either approach, it is important for the landowner to understand the boundaries for construction activity and

the potential impacts construction might create on the property. Be wary of language that expands the size of the

easement by granting the company “a width as is necessary to construct the pipeline,” or that gives the company

broad rights to access and use non-easement property for construction and construction-related purposes. The

preferred language for the landowner regarding construction rights is to state the precise boundaries where

construction will occur.

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The landowner should also place restrictions on construction-related activities such as use of the property by

construction workers. These restrictions could address construction parking and worker sanitary stations and rest

areas, and could prohibit non-construction activities on the property such as hunting, fishing, camping or similar

activities by construction workers.

Construction Timeline

A valuable provision for the landowner to request is a timeline that outlines the time period for construction and

installation of the pipeline. The timetable gives the landowner certainty as to when activity will occur and can help

avoid conflicts between pipeline construction and important events for the landowner, such as farm planting or

harvest seasons. A favorable timetable would include remedies for the landowner if the company causes hardships

and inconvenience by failing to meet the construction timeline.

Construction Standards

The Division of Soil and Water Conservation in the Ohio Department of Natural Resources (ODNR) has

developed a comprehensive set of standards for pipeline construction that address issues such as soil compaction,

erosion and drainage. Adherence to these standards is very important for minimizing impacts on soil and water

resources. A landowner can include the ODNR standards in the easement document, which will require the

company to adhere to these best management practices. For further explanation, see our Fact Sheet, “A

Landowner’s Guide to Understanding Recommended Pipeline Standards and Construction Specifications” or visit

http://www.dnr.state.oh.us/portals/12/CE/Pipeline/Ohio_Pipeline_Const_Standards.pdf.

Pipeline development companies often use third party construction companies to install the pipelines. The

easement should state that all third parties are also subject to the agreed upon construction standards and should

make the development company liable for noncompliance by the construction company. Also, the landowner may

request that the development company provide identification information for all third parties who will perform work

on the land.

Crossing Waterways

Will pipeline construction require crossings of a ditch or waterway on the landowner’s property? The easement

can include a provision that requires the company to construct temporary crossings to prevent erosion and other

interferences with the waterway, streambed and riparian areas.

Impacts on Woodlands and Timber

Pipeline construction projects often interfere with existing woodlands or timber stands. A landowner who does

not want this type of interference should try to negotiate the pipeline location to avoid impacts on woodlands. If the

pipeline will interfere with trees, the easement should address tree removal issues such as who will remove the

trees, best management practices for tree removal, and who has rights to the timber. The landowner may want to

use or sell the timber or may prefer to grant timber rights to the development company and seek compensation for

the value of the timber. An additional consideration is restoration of the woodland area after construction; the

landowner may negotiate for the company to reestablish trees and restore woodland habitat that was impacted by

construction activities.

Drainage, Fencing, Gates and Other Improvements

The landowner may also need for the pipeline development company to replace or install improvements such

as subsurface drainage, fencing, gates, storage tanks, outbuildings and other accessories. Address which

improvements must be moved, how and where they will be moved and compensation for harm to the

improvements. If there are livestock on the property, require procedures that contain the livestock during and after

pipeline construction. A private third-party appraisal may be desirable to assess fair market value for harm to

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structures and improvements. Instead of compensation, the company could be responsible for replacing or repairing

structures and improvements.

Construction of Associated Structures or Facilities

There are a number of structures and facilities associated with the construction and operation of pipelines, such

as compressor stations, pump stations, meter stations and meter pits. Legally, these structures are usually referred

to in the easement as “appurtenances.” A landowner should examine the proposed easement to determine if the

easement allows the development company to place appurtenances on the pipeline easement and if so, where and

to what extent they may exist. If the landowner does not want these structures and facilities on the property, be

sure that the easement language prohibits them. Alternatively, a landowner could limit placement of appurtenances

to certain locations or require that the structure or facilities be hidden or visually pleasing. If the landowner does

allow for these facilities, the landowner should request additional compensation.

Substances Permitted in the Pipeline

The easement should clarify what substances the pipeline may transport. Generally, the landowner would be

wise to limit pipeline use to natural gas and its constituents and prohibit use of the pipeline for other substances

such as wastewater, sewage and oil.

Number of Pipelines

The landowner might expect that the easement is for the construction of a single pipeline, but the easement

language might allow more than one pipeline or “as many lines as regulations allow.” If the landowner agrees to

more than one line, payment should reflect the additional value of the easement that multiple lines create for the

development company. If the landowner is not willing to allow more than one pipeline, the easement language

should prohibit multiple lines. Perhaps the landowner is willing to consider additional pipelines on the easement in

the future; language could state that subsequent pipelines are possible if approved by the landowner and with

additional compensation.

Pipeline Pressure

What is the pressure of the pipeline proposed by the development company? The easement should state the

maximum pressured allowed in the pipeline. It is advisable to consider a higher payment to the landowner for

higher pressure lines because of potentially higher safety risks, especially when the pipeline is located close to

human activity.

Indemnification

A landowner should seek a provision that protects the landowner from liability for all acts of the company

related to the pipeline. Because companies often subcontract to third parties to construct the pipelines, liability

protection should include acts committed by third parties. The company should agree to defend the landowner and

hold the landowner harmless from any liabilities arising from the pipeline or from any pipeline-related activities.

Access to Pipelines for Inspection

The law requires companies to perform routine inspections of their pipelines to make sure they comply with

safety regulations. The methods of inspection a company will use can vary—from gas sampling and leak detection

by personnel on the ground to aerial patrols by plane or helicopter. Landowners should consider addressing how

and where the company may access the property for inspections and consider requiring the company to provide

notice of inspection, including the inspection time and nature of the activity. A farmland owner may want to prohibit

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inspections at specific times of the year, such as during harvesting or planting seasons. A routine inspection

schedule could benefit the landowner, if the company is willing to agree to one.

A final consideration for the landowner is to address property damages and disruptions due to inspection,

maintenance, repair and replacement. Soil compaction and erosion, loss of timber, water supply or property access

and interference with livestock production are a few examples of potential disruptions that pose hardships on the

landowner. Negotiate procedures that detail replacement, repairs or compensation for these disruptions.

Signage and Markers

Ohio Administrative Code section 1501:9-10-03 states that companies must identify the route of the pipeline on

the surface in “a manner that is customary to the industry.” Under federal regulations, markers are to be placed so

that the location of the pipeline is accurately known. It may be in the landowner’s best interest to require additional

pipeline signage and markers so that the landowner can safely conduct agricultural, recreational or other types of

activities without interfering with the pipeline.

Landowner’s Rights of Use

It is advisable for the landowner to retain broad rights to use the easement area. The landowner should try to

forecast all potential uses of the property in the future and specify that the uses do not violate the easement. Such

rights can include rights to farm in, on and around the easement; graze livestock; conduct recreational uses; grant

other easements or place temporary structures, accessories, driveways, roads, walks, parking areas and

landscaping on the easement. Stating these retained landowner rights of use within the pipeline easement will

safeguard the landowner’s ordinary use of the property and minimize inconveniences and misunderstandings in the

future.

Termination or Abandonment of Easement

Both parties should agree to conditions that will legally terminate or end the easement. Easements typically last

forever (“in perpetuity”) as long as the company uses the easement for its stated purposes. However, the

landowner may seek to clarify that there will be an automatic termination or abandonment of the easement if the

company ceases to use the pipeline as intended or fails to utilize it for a certain period of time. For example, the

easement could state that termination of the company’s rights takes place if “no construction occurs within X years

after entering into the easement agreement or there is no actual use of the pipeline for X years.” Where there is a

termination of the easement, the landowner may also want to require the company to remove the pipeline and other

structures and restore the land surface after removal, so should be sure to include these obligations in the

easement.

Disputes and Problems

How will the parties deal with disputes or problems that arise? The parties can agree upon methods for

resolving disputes and include them in the easement. For example, a common dispute provision might prohibit a

landowner from going to court over a dispute unless the landowner has first provided written notice of a problem to

the company and given the company a specific period of time to address the problem. Another common provision

is to require that the parties settle a dispute by arbitration or mediation rather than going to court. The landowner

should carefully review these provisions with the landowner’s attorney and ensure that the process for resolving

disputes is fair and understood by the landowner.

Assignment Rights

The easement should state whether the pipeline development company may transfer its rights under the

easement to another company. If the parties agree to allow an assignment, it is common for the easement to state

that the company must provide written notice of an assignment to the landowner within a certain period of time,

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along with contact information about the new company and a statement that the easement will be binding on the

assigned party.

Amendments to the Easement

What if the parties want to change or amend the easement in the future? The easement should outline whether

amendments are permissible and what each party must do in order to formalize an amendment. It is common to

include a provision stating that any amendments to the easement must be in writing and signed by each party or

their successors.

Warranting Title

Another common clause often found in easements states that the landowner “warrants” clear title to the

property and promises to compensate the company if a title problem occurs. A landowner’s attorney would likely

demand to remove this provision, as it is always possible that an unexpected and unknown discrepancy could arise

in a landowner’s title to the property.

Payment Provisions

Compensation is the final consideration a landowner should make, after gaining a clear understanding of how

the pipeline may affect the landowner and the landowner’s property. This is an important part of the negotiation

process and requires the landowner to carefully assess property impacts, other damages and property values.

There are several elements that should make up the final offer of payment, which includes:

1. Payment for the permanent pipeline easement. The easement agreement should offer a payment for the

actual land required for placing the pipeline on the property. This amount is usually offered as a set dollar

amount per linear foot of pipeline that will be laid on the property. Sometimes the payment amount will be

stated as “per rod,” which is 16.5 linear feet. Many factors contribute to the amount the company offers,

including the size and type of the pipeline, the importance of the location to the pipeline route, current rates

in the area and current land values. Individual impacts and factors should also affect the payment.

Landowners may benefit from talking with other landowners in the area to ascertain baseline values offered

to others, but be aware that individual circumstances can lead to different values. In addition to the per-foot

or per-rod payment, a company might also offer a signing bonus, which gives the landowner another fixed

dollar amount for signing the easement.

2. Temporary construction easement. A company may seek a temporary construction easement that gives

the company rights to use a larger area during the initial pipeline construction and reverts to a smaller area

once the pipeline is completed (see further explanation above under “construction rights.” The company

should make an additional payment for this temporary easement, based on factors similar to those used to

calculate the pipeline easement.

3. Damages to the landowner. Compensation to the landowner should also include any damages the

landowner will incur as a result of the construction, maintenance and long-term presence of the easement

on the property. We discuss many of these potential damages above, such as interference with land use,

impacts on crop production or subsurface drainage and loss of timber. Damages should also include

inconvenience impacts from the construction process.

4. Costs to the landowner. The landowner can also request compensation for additional costs incurred

because of the pipeline, such as payments for an attorney, property appraisals, property surveys and

recording fees.

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Taxation on Pipeline Easement Payments

Landowners should be aware that income received for the easement creates tax payment obligations. For

federal taxation purposes, income for an easement that lasts thirty years or more is considered a capital gain and

must be reported as such. Income received for a “temporary” easement, one that lasts less than thirty years (such

as a construction easement), is considered ordinary income for tax reporting purposes. Payment for damages to

the landowner’s property is considered capital gain. Because of these distinctions, it is important for the landowner

to obtain a statement from the company that itemizes and explains the payments made to the landowner.

The Importance of Professional Assistance

This fact sheet should not be used to replace the services of an attorney or other professional. We strongly

encourage landowners to consult with an experienced attorney and other advisors when considering and

negotiating a pipeline easement.

Useful References

Natural Gas Pipeline Right-of-Ways: Understanding Landowner Rights and Options; Penn State Extension (Apr.,

2010).