A timber sale often involves a substantial sum of money not to mention that such a sale is something the typical landowner does infrequently. Anyone considering a timber sale should not rely on personal judgement, but should confer, instead, with a forester or an attorney experienced in timber sales.

First, when selling timber, be certain your interests are protected; professional assistance is well worth the cost. Usually, matters that deal with deeds, contracts, and other legal formalities are generally complex and confuse laymen. Ideally, the sale agreement should be prepared with the advice of a forester who is knowledgeable of provisions which an attorney could express in legal terms.

Secondly, a good timber sale agreement is clearly understandable, workable and enforceable for both buyer and seller. It is not so complicated that it attempts to cover all eventualities. Neither is it so brief as to exclude essential points of the transaction.

Standing or Severed Timber

Certain legal and tax implications depend on whether timber is sold as standing or severed. Standing timber in North Carolina is real property and cut timber is personal property. By law, the conveyance of an interest in real property, for example, standing timber, must be by written document. For tax consideration, landowners who have made frequent sales of standing timber in recent years must make future sales with a retained economic interest in order to maintain their eligibility for capital gains tax treatment. A "pay-as-cut" agreement may be needed, but consult a competent tax advisor before deciding to convey timber interest.

Cutting contracts and deeds frequently provide the means of conveying rights to an interest in timber. Timber deeds are used most often when payment is made for standing timber; whereas, contracts are used when payment is for severed timber.

Contracts

A contract establishes both the conditions to which buyer and seller agree and also their rights and duties under these conditions. Timber sales contracts or cutting contracts are commonly used in transactions where timber is not sold in lump sums. Payment is made periodically as the timber is delivered to a mill or loading site, although title to the trees passes to the buyer once timber is severed.

Contracts are suitable for unit sales such as pulpwood, chip-n-saw, selective timber cuts, poles and piling and other specialty product sales. However, since sample contract forms seldom include provisions which may be appropriate or desirable for particular sales, many buyers prefer not to accept them.

No two timber-cutting contracts are exactly alike, but all contracts should include basic provisions such as:

  1. Guarantee of title and description of the land and boundary lines.
  2. Specific description of timber being conveyed, method of designating trees to cut, and when, where and how to determine volume.
  3. Terms of payment.
  4. Duration and starting date of agreement.
  5. Clauses to cover damages to non-designated trees, fences, ditches, streams, roads, bridges, fields and buildings.
  6. Clauses to cover fire damage where harvesting crew is negligent and to protect seller from liability that may arise in the course of harvesting.
  7. A standard to completely utilize the merchantable portion of trees.
  8. Clauses for arbitration in case of disagreement.

Deeds

Deeds are used most often when all timber within a prescribed boundary is cut. Deeds especially are popular with purchasers of standing timber who usually require a deed upon payment. For example, most of the major timber buyers in North Carolina prefer a timber deed prepared by their legal department. In many ways, deeds are usually less complicated than contracts. They contain the standard provisions for roads, fences, ditches, fields and boundary trees. The legal description of the property is the only additional information needed. Before the deed can be executed, an essential point is to have the seller's signature notarized and in the proper place on the document. Even though it contains occasional changes that most landowners accept, title to the timber passes to the buyer once a properly drawn up deed has been delivered.

Finally, the sellers should practice their rights to control logging through the wording of a contract or deed, but without making the document long and complicated. Such forms might discourage timber buyers, cause them to submit lower bids, or be impossible to administer. Similarly, too many constraints on logging will increase logging costs, in which case, the seller should be prepared to accept a lower stumpage price.

Closing the Sale

Ideally, there should be mutual confidence and understanding between buyer and seller. Where conditions are such that serious litigation is possible, it is advisable to have signatures notarized. Any important paper, contract, or conveyance should be registered or redorded immediately upon execution at the county courthouse where property is located. If the sale is substantial, the parties should understand who pays for the revenue stamps.

For a good relationship on which to build future sales, conclude the sale in a cordial and businesslike manner.

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Published in October 1995

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