If an energy company has contacted you about a pipeline or other energy project on your land, you may be wondering what could go wrong. For example, what if there were a major storm that damaged the project infrastructure? What if there were an oil spill or a component collapsed, causing damage? What rights would you have?
Although it is generally possible to hold companies accountable for damage caused by their negligence, your path to compensation could be limited by your lease. For example, many leases contain “venue and choice of law” clauses that specify where and how disputes must be resolved. If you don’t negotiate for the venue and choice of law that is favorable to you, these issues will generally be framed in a way favorable to the energy company.
Can I terminate my lease if there is damage?
Most leases spell out when the landowner can terminate the lease. Generally, this will only be allowed after notice to the energy company and an opportunity to resolve the issue. And, you may only be allowed to terminate the lease for nonpayment. If there are other disputes that might cause you to want to terminate the lease, such as a pipeline leak, you are generally entitled to sue, not terminate.
This is largely because the energy company will expend a great deal of capital in developing the project, and it can’t afford to let you terminate the lease for anything less than non-payment.
The upshot is that, if there is a leak or other disaster on your land, you generally do have the right to sue under applicable law.
Is there a damage clause in my lease?
Another place to look for relief in the event of an oil spill is a clause specifically describing what the energy company owes if it damages your land. These clauses can be quite specific about the remedy available, which is usually monetary.
For example, the clause might say that the company will pay a certain amount per head of cattle if it leaves a gate open and the cattle escape. These clauses can also contain specific damages in the event of a spill, failure, collapse, or other event causing damage to your land or water.
Two important things to consider when negotiating your lease are 1) ensuring that the company is liable for damage caused at any time, as opposed to during initial construction only, and 2) ensuring that damage that can be repaired will actually be repaired by the company.
You want to make sure that your land and water are protected from damage during the entire agreement, from construction to removal. You might, for example, protect your property, animals, crops, fences and buildings and those of any tenants from “the leaking, seeping or exploding of gas, or the products thereof, or oil or other hydrocarbons” resulting from the energy company’s use of your land.
Negotiate energy leases carefully
A fossil fuel leak or explosion on your land could cause permanent damage. Likewise, a collapsed component of a solar array or wind farm could be costly and difficult to remediate. Your energy lease needs to protect your land and water, to the extent possible, from disaster and ensure that what can be cleaned up will actually get cleaned up.