A number of Thynne + Macartney’s clients have, in the past few years, generated income streams by changing the management of environmentally significant, although potentially unproductive, parts of their properties.
Resource and infrastructure companies are often required, as a condition of their environmental approvals, to “offset” proposed environmental damage by securing other areas of “ecological equivalence” for preservation.
Those companies engage environmental offset brokers to find suitable offset areas and the search often leads them to properties owned by the State’s primary producers.
Once an offset arrangement is negotiated and documented, the landholder is compensated for commitments to manage the offset area in a particular way.
Landholders’ commitments and compensation
A landholder makes two kinds of commitments under an offset arrangement: the first to the relevant government authority, and the second to the resource or infrastructure company.
The landholder becomes primarily accountable to the government for adopting an agreed management plan for the offset area. The management plan is referenced in a “legally binding mechanism”, often a “voluntary declaration” under Queensland’s Vegetation Management Act that is recorded on the property’s title.
The landholder also commits to the resource or infrastructure company in a separate agreement, as that company has an ongoing interest in ensuring the offset is maintained to meet the conditions of its environmental approval.
Usually, a landholder will be required to restrict vegetation clearing and to manage weeds and pests on the offset area. Landholders may also be required to fence stock out of sensitive areas.
Compensation will paid to the landholder by the resource or infrastructure company on the terms of the negotiated agreement. Usually, the majority of the compensation will be paid when the “legally binding mechanism” is put in place. Other amounts may be payable at certain milestones such as the achievement of annual targets under the management plan.
Suggestions to avoid problems
If a property is mortgaged, the consent of the landholder’s financier to the offset arrangement will be necessary. Landholders should begin discussions with their bank manager early to determine whether the bank will support the proposal.
Landholders should also seek legal advice before signing any documents. The proposed offset area management plans Thynne + Macartney’s agribusiness lawyers have reviewed in recent times have been defective in many respects. They are often unnecessarily lengthy and repetitive documents. Landholders should take care to:
- resist giving commitments outside their control (for example, a commitment to ensure vegetation reaches a particular height or canopy cover or remnant status);
- ensure there is an end date on the landholders’ commitments and an effective mechanism to remove the offset from title; and
- minimise repetition in the document where possible and, as a last resort, ensure like concepts are expressed consistently.
When it comes to the agreement with the resource or infrastructure company, landholders should seek adequate security for any payments to come from the resource or infrastructure over time. That is particularly important because the landholders’ commitments to the relevant government authority under a management plan will not be affected by the company’s failure to pay.
Thynne + Macartney’s agribusiness lawyers assist landholders to negotiate sensible changes to offset documentation to protect landholders’ interests.
This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.