Market Rent For Underground Easements

[Michael S]

I have minimal experience with easements so I'm looking for some information on how rental rates are typically determined. My research thus far as shown that it is typically based on a percentage of the underlying land value (say 25% or 50%) if it's a one-time payment. For annual rent I couldn't find much information on how rents are typically determined.

The proposed easement is for an underground fiber optic line connecting from an existing line to the edge of the property line approximately 1,500 feet away. This line will serve a customer with a large facility in an isolated area who has had to use unreliable microwave internet. The land has minimal value as it's essentially desert scrub/marginal grazing land. If there was a market for it it would probably be about $2,000 per acre at most.

Assuming a 20' easement that's 30,000 SF of land area which has a fee simple value of about $1,300. So if you take a percentage of that, say 50% you're looking at a whooping $650. Not even worth doing the deal for the landowner. However, the telecom company will be charging their customer for installing the line plus a monthly fee that I'm sure will be relatively hefty given the size of the connection.

So, given that the underlying land has little value but the landowner has considerable leverage is a much higher rate still reasonable, say several thousand dollars a year? Comps for easements are pretty scarce in my experience though I suppose someone who specialized in ROW work would probably accumulate a lot of data.

 

[Howard Klahr]

Are you seeking market value or value to a particular user?

 

[leasedfee]

How much does the easement affect the site? Down through the middle, or along the edge with the rest of the utility easements? How does it affect H&BU/long-term use of the impacted area. Is the easement perpetual? Exclusive or non-exclusive? Easements are typically a one-time payment for the property interest; not a lease. But if you did, to determine the rent, you capitalize the easement's value at a land rate (R_L). At the end of the day, cheap land doesn't have much value to compensate for an easement. When I was with the gov't doing easement acquisition, we'd sometimes round up such a nominal amount to $1,000 (that was back in the early '90s, so round up more today) just to account for the hassle to the grantor.

The quicker the deed of easement can be granted, the less professional staff time (lawyers, ROW agents, managers) for the acquiring ROW authority, and that's worth paying above market value. If you can get the easement for 40 staff hours, rather than 400 staff hours, at say $200/hour with overhead, then that's an organization's savings of $72,000. So if the property owner said, gimme $5000 and I'll sign your easement, then that's a no brainier in my mind.

 

[Gobears81]

I appraised multiple properties for easement acquisition related to fiber optic lines a few months ago and they were treated as permanent easements. Assuming no damage to the remainder from the easement imposition and no disruption of building/ site improvements in the proposed easement area, compensation is related to the loss in value for the land in the easement area. On my assignments, the fiber optic lines were in the setback area that couldn't be farmed and I determined 25% to be appropriate compensation. In your case, with the lower land values, you would want to inquire on whether there is a minimum compensation set by that acquiring entity. In Illinois, it is $300, so for projects that are not highly disruptive and in lower-value locations, the suggested compensation is often rounded up to this number.

 

[DREA Dean]

As mentioned, it comes down to H&BU. How does this easement impact the remainder? It depends on the location, depth, etc. Nobody can really argue your percentage, so long as it passes the sniff test, and treating it as a full take (even though it's an easement) might be entirely reasonable. But you really need to consider how and where it crosses the property.

 

[Zephyr999]

Ditto to the above...in ROW assignments utility and use in the after across/over/under the permanent easement may impact the percentage applied based on the shape and location of said easement. Drain tile and crop irrigation come to mind...

 

[Michael S]

This is a small portion of a much larger tract, right near the edge. Realistically the impact to the surface rights is quite minimal. It still comes back to why would a landowner agree to such an agreement for a pittance. I appraised some 2-3 acre fee simple parcels along pipelines for pump stations in remote areas. Although the surrounding land was selling for $400-800 an acre, that was for 100+ acre tracts. One large rancher said he wouldn't even think of carving out a couple acre parcel for less than about $10k.

The government is involved so it's likely going to be FMV but it's a private company that wants the easement so it almost becomes a bilateral monopoly.

 

[Gobears81]

It still comes back to why would a landowner agree to such an agreement for a pittance. I appraised some 2-3 acre fee simple parcels along pipelines for pump stations in remote areas. Although the surrounding land was selling for $400-800 an acre, that was for 100+ acre tracts. One large rancher said he wouldn't even think of carving out a couple acre parcel for less than about $10k/QUOTE]
Easement appraisals are valued based on part of the whole, rather than that part as though sold separately. We don't have ranchers in IL of course, but many farmers react the same way to these scenarios as they don't like their land touched. But if the entire tract of land is worth $2000/ acre and a one acre underground easement decreases that value of that easement area by 25%, then suggested compensation is $500 if it has no adverse impact or damage on the value of the remainder. Regardless of the current owners take on that type of compensation, that is accepted procedure. Bilateral monopoly isn't really an appropriate consideration here either as a 100 acre tract selling at $2000/ acre would in my example be worth $199,500 after the easement imposition based on market value

 

[Michael S]

Does it make a difference when the easement is for a private entity versus a utility or government where eminent domain can apply? It seems like in that case you have a the buyer (person who wants the easement) who is pretty much at the seller's mercy. If they don't want their land used for an easement they can just tell the other person to pound sand until they make it worth their while. For instance, oil companies commonly pay a lot more than the underlying fee simple value of land for easements - though in their case a lot of that may represent damages to the whole of the remaining tract by having a road with traffic on it to go maintain a wellhead for instance.

 

[sebridges]

This is a small portion of a much larger tract, right near the edge. Realistically the impact to the surface rights is quite minimal. It still comes back to why would a landowner agree to such an agreement for a pittance. I appraised some 2-3 acre fee simple parcels along pipelines for pump stations in remote areas. Although the surrounding land was selling for $400-800 an acre, that was for 100+ acre tracts. One large rancher said he wouldn't even think of carving out a couple acre parcel for less than about $10k.

The government is involved so it's likely going to be FMV but it's a private company that wants the easement so it almost becomes a bilateral monopoly.

I was thinking the same thing. We do a lot of rural properties, and regardless of how low overall land values are on large tracts, 1-3 acres parcels that a home can be built on usually never transact for under $8-$10k.