An Introduction to Timber Sale Contracts

If you own timber, it is inevitable that at some point in your ownership a timber sale will take place, even though many landowners may only have one timber sale during their land tenure. The sale of timber can be a pleasant income-earning opportunity, or it can be an unexpected nightmare. The success or failure of a timber sale can depend on how well your timber sale contract is written. The goal of this publication is to provide forest landowners with an introduction to written timber sale contracts and to highlight some of the key focus areas in a timber contract.

When you sell your timber, it is important to have a written timber sale contract. The purpose of a written contract is to protect you as the landowner and also the timber buyer and logging contractor, and it ensures that all involved parties have the same information. Additionally, in contrast to an oral contract, a written timber sale contract can be upheld in a court of law if needed.

Finding a Consulting Forester

It is highly encouraged that all first-time timber sellers, and those who only sell timber occasionally, use a professional forester to help with their timber sale.¹ While forestry extension agents and South Carolina Forestry Commission stewardship foresters are great sources for additional information, consulting foresters should be used to plan and execute a timber harvest. Forestry extension agents in South Carolina are part of Clemson University, and part of their job is to provide landowners with updated information and resources so that they may properly manage their forest based on their objectives. They, however, do not write forest management plans or oversee timber harvesting operations for you. Stewardship foresters with the South Carolina Forestry Commission provide advice to forest owners and may write a basic forest management plan. They also do not oversee your timber harvesting operations but can provide you with information on what to look out for. A consulting forester is a professional who is registered with the South Carolina Board of Registration for Foresters. The consulting forester is hired by you, the landowner, to cover all your forest management needs. Consulting foresters are paid in different ways, and for timber harvests, they often get a small percentage of the timber sale value. For other services, such as a forest management plan, they either charge a fixed rate or bill you by the hour. Given the specific focus areas of extension agents and stewardship foresters, hiring a consulting forester for your timber harvesting operation will be the best choice. A list of consulting foresters in South Carolina can be found on the South Carolina Forestry Commission website. A consulting forester will have the knowledge and experience to guide you as a landowner through the design and implementation of your timber sales contract. A consulting forester will also oversee the logging operation throughout the harvest to ensure everything is going according to the contract specifications. Recent research in South Carolina has shown that about half of the landowners in the state use a consulting forester for their forest management needs.² If you do not wish to use a consulting forester, you should review this publication and others such as A Landowners Guide to Forestry in South Carolina¹ and Cut Once, Ask Twice,³ as well as the South Carolina Forestry Commission website.

Many different templates for timber contracts are available on the Internet and may be provided by wood dealers and timber buyers. Contracts can range from simple one-page contracts to multiple pages with a series of stipulations and clauses. The South Carolina Forestry Commission provides a basic timber contract template on their website. However, many parts of this contract need to be filled in with specific details of the harvest goals, prices, and other stipulations. This may seem like a daunting task, especially for first-time timber sellers. A general rule is to have a contract that specifies everything important to you as a landowner. Stay clear of contracts that are very simple and leave a lot of room for interpretation. In most cases, the timber harvest will conclude with no problems, but you will be glad you have a detailed timber sale contract when this is not the case. Whether you are using a consulting forester or handling the timber sale yourself, there are several things you will need to consider when developing your timber sales contract.

Advertising Your Timber

Before you develop a timber sales contract, you have to come to an agreement with a logger or timber buyer. To maximize the value of the timber you are selling, you should advertise your timber to many buyers and ask for sealed bids, although other marketing options are feasible as well. A consulting forester will be able to help you create a sealed bid invitation to ensure that you maximize the value of your timber. Before advertising the sale, identify an undisclosed minimum price that you would accept. Sealed bids are typically due by a specific date and time determined by you so that you can open all the bids at once and select the highest bidder.

There are key points to include when advertising your timber sale. The information you send to potential buyers is called a timber sale prospectus. At a minimum, you should include

• the volume of timber to be cut,
• a map,
• the form of payment required,
• some key details and limitations that could attract or deter a timber buyer, and
• a statement that you maintain the right to refuse any or all bids.

Developing a Timber Sale Contract

Who is Involved and When Will the Timber Be Cut?

A timber sale contract should include the contact information for all parties involved in the sale. Typically, this would be you, the landowner, as the seller, and either a timber buyer or logging contractor as the buyer. If your timber is owned by multiple individuals, such as family members, it is important to list their contact information as well. You also want to set a start and end date for the timber sale contract. A typical length for a timber sale contract is between twelve and twenty-four months. This is important so that you, as a landowner, can get out of a contract if the buyer is not going to harvest your timber in a timely manner. Since harvesting operations are planned in advance and are dependent on many factors, a logging contractor will not be able to cut your timber the day after your timber sale contract is signed, so providing an adequate timeframe for a timber harvest is essential. When providing a time frame for the timber harvest, you may also want to consider including provisions for weather-related delays and possible extensions for the timber harvest. It is common to provide an extension in writing so that you have proof of the new deadline.

Tract Location

A legal description of the tract to be harvested should be included in the timber sale contract, including a description of access points. You can find a detailed description of your tract in your property deed. You should provide information about road access to your property and where you would like the logging contractor to access your property. Make a note of any gates or other obstacles that may prevent a logging crew from entering the property. You should also include a map of the property that shows the information listed below. The most basic map is hand-drawn, possibly on top of an aerial photo of the property. A consulting forester can help you create a professional map, or you can make use of free mapping software such as the Map My Property software by the Texas A&M Forest Service.

Important information to list and highlight in the timber sale contract includes

• boundaries of the property
• area to be harvested (specific stands)
• location of proposed or existing logging decks and logging roads
• gate locations
• access to paved roads (if any)
• creeks, streams, or wetlands on the property
• existing creek or stream crossings
• any other sensitive areas (such as old home sites, grave sites, food plots, etc.)

Payment Types

There are three common types of payments involved in a timber sale contract: lump sum, per unit, and blended price.

1. The lump sum payment is the simplest type. The landowner and timber buyer negotiate upfront, or by means of a sealed bid, a set price for the timber that will be harvested. The total sum typically depends on the estimated volume to be cut as well as the quality of the timber. The seller will typically receive full payment prior to any trees being harvested. It is important to include in the contract that the ownership of the standing trees will transfer to the buyer with payment of the lump sum amount. This also includes the assumption of the risk of damage to the standing trees (due to natural disasters, insect damage, etc.) by the buyer. A provision should be included that states there will be no refund of the paid lump sum if the buyer cannot harvest the timber within the specified time frame.
2. Per unit timber payments are an agreed-upon price set per unit of timber cut. When doing a per unit timber sale, it is essential to set your price based on specific timber types (sawtimber, pulpwood, chip-n-saw, etc.) and define what exactly constitutes a unit. Typically, wood is measured either by weight in tons or by volume in the form of one-thousand board foot (MBF). One board foot equals a board that is one inch thick with a dimension of twelve inches by twelve inches. The amount of wood harvested is reconciled using the load tickets generated by the mill. Per unit contracts generally result in the seller being paid as the timber is cut, typically on a weekly basis, unless other terms are stipulated. You should also consider specifying the dimensions for each product to ensure that your trees are correctly merchandised to return the most value to you.
3. The blended price payment is similar to the per unit sale, but instead of a separate price for each product, one price across all products is negotiated or bid-on. This way, you will get the same amount of money per unit for every product leaving your property. As such, you will not have to worry about the appropriate merchandising of the timber, as it will not impact your financial bottom line. Depending on the market conditions in your area, you may be able to make more money than with a traditional lump sum or per unit sale.

There are advantages and disadvantages to all three types of payment. Discussing your goals and options with a consulting forester can help to ensure that your contract is structured to best meet your needs. Most timber sales are based on an estimate of volume to be harvested. With the lump sum payment option, you will get paid based on that estimate. If the actual volume is larger than the estimate, you will not receive any additional money. With the per unit and blended price payments, you will get paid for every unit of timber that comes off your property, regardless of the original estimate.

With an increase in woody biomass markets, you also want to consider adding a price for woody biomass chips. There have been instances wherein there was no price negotiated for woody biomass chips, and the landowner and logger disputed whether the full pulpwood price was to be paid for the volume removed in wood chips. Not every logger will have a wood chipper, but again, this may change as market conditions and demand change.

Type of Harvest

You will want to specify the type of timber harvest to be performed. Are you looking to have your timber first thinned, second thinned, or clear cut? Do you want an even-aged or uneven-aged stand composition after the harvest? The answers to these questions will likely depend on whether you are managing a southern yellow pine plantation or a naturally regenerated softwood or hardwood forest. To help you make this decision, you should be talking with a consulting forester to determine what type of harvest is best for your stand. To obtain additional information on what is possible, you can consult A Landowners Guide to Forestry in South Carolina¹ and The Practice of Silviculture.⁴

Once you determine the harvest type, you may need to specify how trees are removed for harvest. Two common thinning options are marking your trees for removal, or using the equipment operator to select the trees for removal. There are advantages and disadvantages to both methods. Marking trees is time-consuming and costly; however, you or your consulting forester have full control over the trees that you would like to have left in your stand after the harvest. Operator select thinning does not require you to paint trees as the equipment operator will select the trees to be removed. In many instances, this option is as good as marking timber; however, sometimes the equipment operator does not see the entire tree and may leave undesirable trees while taking desirable ones. After all, the equipment operator has only seconds to decide which tree to harvest next.

For thinnings, you will also want to describe the exact nature of the trees to be removed. With tree marking, give details about what color you used to mark trees. For operator select, provide a specific order of what size trees for each species should be removed and provide specific information about the target basal area after the thinning is done. In plantations, you also want to specify if you want to do a third row or fifth row thinning, or any other type of row removal. In naturally regenerated stands, specify the skid trail spacing that you would like to have implemented. The more information you can provide in the sale contract, the more likely it is that all involved parties will be on the same page with their expectations.

If you clear cut, you will not have to make any of these choices as all merchantable trees are going to be removed. However, you do want to specify what will happen with non-merchantable trees, typically trees that are smaller than four inches in diameter at breast height (DBH). Often these trees will not get cut in a clear cut, and this can make your reforestation efforts costlier. If you plan on planting new trees after the final harvest, you should consider and stipulate that all trees, including non-merchantable ones, will be cut and possibly removed from the site.

If your timber is part of a USDA Natural Resources Conservation Service (NRCS) contract, such as the Conservation Reserve Program (CRP), there may be a target basal area that needs to be met, and having that clearly stated in the contract will be helpful. Sometimes, these contracts also specify at what age a particular treatment will have to happen. If you are enrolled in an NRCS contract, contact your district conservationist to make sure to check your timeline and any other stipulations that you or your logger may have to follow during the harvest. If you are enrolled in a carbon credit trading program, you have to be careful when removing trees from your forest, as this can alter your carbon sequestration rate and subsequently may cause a penalty payment. Consult with your carbon credit broker for more information and any other restrictions.

Best Management Practices (BMPs)

It is always important to state that the logger must follow the South Carolina Forestry Commission Best Management Practices⁵ before, during, and after the harvest. BMPs exist for conventional harvesting in South Carolina, but also for woody biomass harvests and areas that include braided streams. Additional BMP information and digital manuals can be found on the South Carolina Forest Commission website. A copy of the BMP book can also be found at your local South Carolina Forestry Commission office or your local Clemson Extension office.

BMPs are important to follow as they are designed to minimize soil compaction in order to protect soil health and water quality. Forests in the southern US provide drinking water of the highest quality, so it is imperative to keep our water sources protected. One very common measure when working around streams during a timber harvest is to keep a buffer, called a streamside management zone (SMZ), between the stream and the harvesting operation. A fairly undisturbed buffer will filter out any sediment that may run off from a harvest site during a rain event and prevent soil from entering and depositing in streams.

If your property is certified by the American Tree Farm System or the Sustainable Forestry Initiative, you will have to state in your contract that your loggers will have to follow South Carolina BMPs. This is a requirement for the certification process.

Penalties, Fees, and Other Considerations

A timber sale contract needs to have all applicable penalties clearly stated. This includes problems such as cutting past boundaries and the replacement of destroyed items such as gates, roads, culverts/pipes, etc. Cutting past the property boundaries has to be prevented as cutting timber on your neighbor’s property is considered timber theft, and the damage can be assessed to up to three times the timber value. Marking your boundaries clearly for the logger to see is important to prevent this from happening. This means marking your boundaries on both sides of a tree and at the appropriate height for an equipment operator to see. Remember that the equipment operator will be sitting eight feet or higher above the ground. The South Carolina Forestry Commission Law Enforcement Division publishes the book Forest Laws in South Carolina,⁶ that is also available in digital format on their website.

It is wise to cover such issues as fire protection and natural disasters should something happen to the timber during the contract period. Specify who will be responsible for fire protection and the associated damages, and outline who will carry the damage from a natural disaster. Especially with a lump sum timber sale, the ownership and all risk for damage should be transferred to the buyer. As you discuss the timber sale with a consulting forester or fellow landowners, there may be another series of stipulations, penalties, and fees, that you may want to consider including in your timber sale contract, based on your situation.

A good logger will always ensure that no damage is done to the property; however, certain circumstances can lead to unintended damages. Penalties can be assessed for many things, but a landowner should be careful with stipulating too many penalties in a timber sale contract. This can deter a timber buyer or logging contractor from purchasing your timber. When an issue arises, it is wise to have someone designated as a third-party mediator to help settle disputes. Try to use a mediator first before suing the logger or timber buyer.

Conclusion

Having a written timber sale contract is important when selling your timber either by yourself or with the help of a consulting forester. We always hope that no problems occur, but when something happens, a written contract will help protect your interests. Stay away from oral contracts, as it is almost impossible to prove what was discussed and what the content of the stated contract actually was. Timber sale contracts are legally binding agreements between both the timber buyer and the seller. By using the information and resources outlined in this document, hopefully, your timber sale will be a positive and financially rewarding experience.

As previously mentioned, hiring a registered consulting forester to advise you and oversee your timber sale can be very beneficial. Another professional that is wise to have involved is a forest taxation expert. A forest tax expert can help direct you in depreciating your timber sale income through forest management expenditures, and this will help you reduce any possible tax burden. The money that you gain from a timber sale is not all yours, and in most cases, you will have to pay long-term capital gains taxes. To properly account for that, you may have to establish your timber basis before the timber is sold, and a consulting forester and forest taxation professional should be able to assist.

References Cited

1. South Carolina SFI Implementation Committee. A landowner’s guide to forestry in South Carolina. Columbia (SC): South Carolina Sustainable Forestry Initiative Implementation Committee; 2011.
2. Hiesl P. A survey of forestry extension clientele in South Carolina, USA. Small-scale Forestry. 2018;17(3):309–321. doi:10.1007/s11842-018-9389-2.
3. Harris AB, Hiesl P. Ask twice, cut once. Forest Landowner. 2016;75(3):28–35.
4. Smith DM. The practice of silviculture. 8th ed. New York (NY): John Wiley & Sons, Inc; 1986.
5. South Carolina Forestry Commission. South Carolina’s best management practices for forestry. Columbia (SC): South Carolina Forestry Commission; 2012.
6. South Carolina Forestry Commission. Forest laws in South Carolina. 8th ed. Columbia (SC): South Carolina Forestry Commission; 2017.