Gas leases have impact on local real estate market

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November 22, 2011

Gas leases have impact on local real estate market

BY JOE MAHONEY Staff Writer The Daily Star Tue Nov 22, 2011, 02:30 AM EST

COOPERSTOWN -- Lease or no lease?

In a region where hundreds of parcels have been leased to energy companies, more and more prospective home buyers are asking whether the real estate they are eyeing is under lease to a gas drilling company, according to several local real estate agents.

"It is impacting us to the point that we have actually lost sales because of it," said Dave LaDuke, a broker with John Mitchell Real Estate in Cooperstown.

Savvy buyers are not only asking about the status of the properties they'd like to view but also whether any other tracts of nearby land are under lease with gas companies, real estate agents said.

Unless they are possibly speculating they could profit by leasing the land themselves to a gas company, they often walk away from the property when they hear the land it sits on is under lease, real estate agents said.

"This is affecting the marketing of houses drastically, and it's affecting our sales," said Ron Johnson, an associate broker with Hubbell's Real Estate in Cooperstown. "People in general are very skeptical about buying land next to leases or houses next to leases. If they go through with the purchase, the buyers know they are going to have to live with it for a long time."

Would-be sellers whose homes are leased or next to leased lands are finding that buyers are concerned about potential pollution in wells, and concerned they may have difficulty obtaining a mortgage or homeowner's insurance.

"The banks are reluctant to take on these mortgages," Cedar Ridge Realty sales agent Kelly Branigan said. That makes it more difficult for the seller to find a buyer, she said.

Real estate agents said they are required by their code of ethics to disclose any material fact about a condition that could impact the value of a property. In anticipation that buyers will want to know up front about whether a property is leased or not, some real estate ads are beginning to include mention of if the property is under such an agreement.

Eric Lein, a sales agent with Realty USA in Oneonta, said he is surprised when he encounters buyers who have no interest in knowing whether gas drilling could be permitted in an area where they are looking for a house.

"This is something that isn't discussed enough," Lein said. "I know if I was looking for a piece of property and somebody in my area was going to have fracking on his property, I wouldn't buy in that area."

In Otsego County, a total of 1,148 parcels of land are under lease with gas companies, according to the Otsego County Conservation Association, which compiled the information from records kept by the Otsego County Clerk's office. A map showing the location of those parcels is posted on the group's web site: www.occainfo.org.

Homeowners who sign away the drilling rights to their land to natural gas companies are taking a major risk with their mortgage because mortgage agreements prohibit heavy industrial activity and hazardous materials on the property, said Elisabeth Radow, a real estate lawyer from Westchester County and an expert on gas leases.

"The notion of setting up a heavy industrial enterprise on your property is something your lender is going to want to know about," Radow said.

Also put into jeopardy by a drilling lease is the owner's homeowner's insurance policy.

"There is the potential that homeowner's insurance carriers will decline to insure homeowners who have gas leases because they don't want to be pulled into litigation and pay the litigation expenses," she noted.

And even though the state Department of Environmental Conservation is continuing to review draft rules that would allow hydrofracking to go forward, she said real estate shoppers should be especially cautious when looking in an area where there are leases.

"People have to assume that these operations are going to be going on wherever they see that a lease exists," she said.

Still another reason for caution for buyers who have no desire to lease their land to gas companies is New York's compulsory integration law, which can force neighbors into a drilling pool even when they have refused to sign a lease, Radow said.

Homeowners who have signed leases and think they can get out of them simply by waiting for the expiration date are often in for a rude awakening thanks to automatic renewal clauses that work to the advantage of the drilling companies, said Syracuse-based environmental lawyer Joseph Heath.

Heath, who has conducted lease termination workshops for homeowners seeking to get out of the agreements they signed with gas companies, said some leases allow the companies to extend the agreement simply by commencing "operations."

In one case in Pennsylvania, he said a company extended a lease simply by parking a bulldozer on a property before the agreement expired.

"It's an incredibly broad definition of what are 'operations,'" Heath said.