Allowing this type of harvesting will reduce the long-term financial benefits (e.g., impedes the growth and development of high-value sawlogs) that can be derived from a well-managed woodlot. Further, a diameter-limit cut is not uniform and often results in over-cutting.  Harvesting only occurs in areas of larger trees, while other areas of smaller trees are not thinned. Poor quality, small diameter trees with no potential to develop into sawlogs are not removed to provide room for the remaining sawlog-quality trees. In areas that are cut too heavily, there will be insufficient large trees to capture the increased light, moisture and nutrients available from thinning.

Have a written contract

What if a landowner and logger get into a dispute two weeks into a harvest over when payment is due? The logger insists that payment will be made only at the end of the entire harvesting operation. The landowner believes that payment should be made before any of the logs leave the woodlot. There is no written contract, only a verbal agreement. Who wins?

When you get your car serviced at the local GM or Ford dealer you sign a work order (aka a contract entering into a business transaction) outlining what repairs will be completed and at what cost.  Selling standing timber is no different — it needs to be treated as a business transaction, and it is essential to have a written contract. Without a contract, if problems arise during the harvesting operation, your options to seek redress are severely limited.

A contract protects both the seller and the buyer. The contract provides the “who, what, where, when and how” of the business transaction. For example, your contract should include the name of the seller, the buyer, location of sale, volume being sold, a start and completion date, payment schedule, insurance requirements, dispute mechanism and penalties for non-performance.

There are numerous sample contracts (see references below) that landowners can use as a template; however, you should keep in mind that a sample contract is only a guide. A contract should be customized to meet your specific needs, and it is recommended that you consult a lawyer to review the contract before both parties sign it.

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Not utilizing a forest consultant

In an attempt to save money, we often overlook the simplest of things.  One of those things is to do a self assessment to determine whether you have the necessary knowledge, skill set and time to manage a timber sale. When in doubt, why not seek out the advice and expertise of a qualified forest consultant?  

A knowledgeable forest consultant can help you through the process of selling your timber, help you avoid the pitfalls discussed in the article and assist in developing a strategy to successfully achieve your long-term objectives. You are seeking someone who will represent your interests and provide you with unbiased advice.

Not having a clear understanding of which trees you have sold

Many timber sales continue to occur without the trees designated for harvest being marked. Often this type of sale is done in conjunction with a diameter-limit harvest. Under such circumstances, the landowner doesn’t have a clear understanding of which trees will be cut or how many. When this occurs it often leads to high-grading and over-harvesting.

Tree marking in its simplest form identifies to the logger (and the landowner) what trees are for sale and what trees are to be harvested. However, it is important to ensure that your woodlot is marked by a certified tree marker¹ following sound forest management principles (a prescription²). Tree marking is a relatively inexpensive operation, and when done in conjunction with good forestry practices, will optimize your economic return and enhance future timber quality and quantity; help maintain and or enhance valuable wildlife habitat and biodiversity; and ensure the long-term sustainability of your woodlot.

Am I receiving fair value?

When buying a car, most people will check prices at several dealerships to determine a fair price before making their purchase. Unfortunately, there are some who don’t apply the same principle to selling their timber. They only talked to one buyer about the value of their timber. After the sale, they have questions about whether they received the best price.

For the layman, securing accurate information on standing timber prices is difficult. Each woodlot has its own characteristics, and there are just too many variables (species, grade of logs, volume available, local markets, conditions of the sale, distance to the mill, etc.) that affect the stumpage³ a logger will pay.

Never be pressured into making quick decisions when selling timber. The tree’s quality and value will not depreciate overnight. It is highly recommended that a competitive bidding process (by advertising your sale to local loggers and sawmills) will obtain the best value for your timber. An experienced forest consultant can help you with this process, and there is some good information on developing a tender sale in the publication A Landowner’s Guide to Selling Standing Timber (see below).

Landowner missing in action

Most loggers want to do a good job; however, sometimes things do go wrong. Occasionally it is simply a misunderstanding on the part of the logger or landowner, or in some cases a careless job is done.

Whatever the reason, issues need to be identified early and addressed quickly to avoid major problems or damage to the woodlot.

As a woodlot owner, keep involved in the project. Set up a schedule with your logger to meet and discuss the progress of the work and to assure that everything is going as planned. If you are unable to monitor the logging operations, it is highly recommended that you seek the assistance of a forest consultant to help out.

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Income tax considerations

In 1789, Benjamin Franklin wrote, “Nothing is certain but death and taxes.” Well, over 200 years later, Franklin’s words are still valid today.

Often questions arise about how to deal with the revenues generated by a timber sale. The money has already been generated, and the landowner is now seeking information about how it should be treated from an income tax perspective, or even worse, they have just received notice that they are being audited by the Canada Revenue Agency.

Know the tax treatment of timber income before selling!  Seek out the advice of a knowledgeable chartered accountant that is familiar with woodlot-related tax issues.  Obtain a copy of Revenue Canada’s income tax interpretation bulletin “IT-373R2 (Consolidated) Woodlots.” This bulletin deals with some of the issues around taxable income for owners and operators of woodlots, including woodlots operated as farms.

Here today, gone tomorrow!

The forest industry is no different than any other business; unfortunately, there are a few bad loggers sprinkled in with many good ones. Often the complaints are about non-payment, the logs have been removed from the property and the logger still owes money, or the logger is not willing to repair property damage and won’t return phone calls.

To help avoid some of these pitfalls, you may want to consider requesting full payment in advance before the operations begin or, at very least get a series of advance payments (before the logs leave your property) as the job progresses. In addition, you may want to request a performance deposit over and above the selling price that would be held in trust until the contract has been successfully completed. Any such terms should be clearly spelled out in the contract and identified to potential buyers as part of the bidding process.

Not having a management plan

Don’t shortchange yourself. Before you make the decision to sell timber you should determine your long-term objectives. Use your woodlot management plan to guide your decisions. Will your objectives be enhanced by a timber sale at this time or be jeopardized? Seek out the assistance of a forest consultant if necessary to help you set out a clear, logical management strategy based on your own personal objectives. A concise plan, including maps and a detailed inventory, will allow more effective communication between you and everyone working in your woodlot.

More Information that will Help Keep You out of Trouble

The following guides, publications and service directories will help you avoid some of the common pitfalls of selling standing timber.

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A Forest Service’s Directory for Landowners – to find the right forest service provider you need (e.g., forest consultant, tree marker, logger, tree nursery, etc.), visit the website <http://www.ontariowoodlot.com>.

A Guide to Stewardship Planning for Natural Areas – consider developing a management plan. This guide provides a framework to help woodlot owners in developing a woodlot management plan. A copy of the guide is available online at http://www.mnr.gov.on.ca/en/Business/Forests/Publication/MNR_E000231P.html.

A Landowner’s Guide to Selling Standing Timber – this guide is a comprehensive and easy to read handbook that will help you make the right decisions about harvesting your woodlot. The guide is available online at http://www.ont-woodlot-assoc.org/info_oub_carefullogging_guide.html or available to OWA members by calling 613-258-0110 #221.

A Landowner’s Guide to Careful Logging – this guide offers a clear, practical overview of careful logging practices, both for the novice and professional logger. The guide is available online at http://www.ont-woodlot-assoc.org/info_oub_carefullogging_guide.html or available to OWA members by calling 613-258-0110 #221.

Forest Conservation Bylaws – a list of municipalities that have a forest conservation bylaw (tree cutting bylaw), and information on bylaws is available online at http://www.ontariowoodlot.com/bylaw_main.html.

IT-373R2 (Consolidated) Woodlots – a copy of the bulletin is available by calling the CRA at 1-800-665-0354 or online at http://www.cra-arc.gc.ca/E/pub/tp/it373r2-consolid/it373r2-consolid-e.html.

Timber Sale Contracts – these generic sample contracts will provide landowners with a template to use as a basis to prepare their own timber sale agreement. Copies are available online at http://www.ontariowoodlot.com/pdf_older/samp_timb_sale.pdf  and http://www.lrconline.com/Extension_Notes_English/pdf/Selling%20Standing%20Timber%20.pdf.

Footnotes

¹ Certified Tree Marker – the Ontario Ministry of Natural Resources provides tree marking certification training. The training covers silvicultural systems, silviculture, silvics, wildlife habitat, tree defects and tree vigour characteristics. Successful participants are issued a certificate endorsing their skills as a certified tree marker. To maintain their certification, a tree marker must attend and successfully complete a refresher course every five years.

² Prescription – describes a series of actions to be taken to meet the silvicultural management objectives (e.g., improve growth and quality of the forest, ensure regeneration, provide wildlife habitat, etc.) for a specific area based on an assessment and inventory of that area. In Ontario, provincial legislation requires that the development (or approval) of a prescription is the responsibility of a Registered Professional Forester, or an Associate Member, of the Ontario Professional Foresters Association.

³ Stumpage – are the fees paid by a logger to the landowner for the right to harvest standing timber. The price paid (stumpage fee) is generally based on the local market value, volume, and quality of the trees to be harvested, as they stand uncut in your woodlot.

This article appeared in a past edition of the S&W Report the newsletter of the Ontario Woodlot Association.

© 2011 Ontario Woodlot Association

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