Managing Associated Risk Through Easement Agreements

June 3, 2015 by Philip B. McKiernan, Partner
Managing Associated Risk Through Easement Agreements

The following is an excerpt from Ice Miller's Pathways to Success for Utilities Guide which provides insights on a variety of topics potentially impacting utility service providers. 

The easement agreement is the primary, and possibly only, way a utility has to manage risk associated with another’s use of a right-of-way area or in the vicinity. In order to develop a proper easement agreement, the first step is to assess the risks that may arise in connection with how the landowner uses the easement area. Again, what can go wrong? How likely is it? What are the consequences? With answers to these questions, a utility and its counsel can determine what needs to go into a new or re-negotiated easement
agreement in order to deal with the possible risks.
Developing specific provisions to control the risks of a landowner’s or third party’s activities on a utility’s right-of-way is a fact-sensitive exercise. However, there are some basic drafting principles that may be helpful.
  1. Since a landowner’s or third party’s use of the right-of-way must be consistent with the utility’s use, a broadly-stated purpose in the easement agreement can exclude or limit another’s use of the area. For example, instead of obtaining the easement right to just “install” a pipe on land, having the right to “install an underground pipe for purposes of providing potable water as part of a utility service” may bolster arguments that particular landowner activities create a risk of contamination to the water. Therefore, certain activities on or near the right-of-way area could be inconsistent with the utility’s use of its easement rights and thus impermissible.
  2. An easement agreement should identify, preferably as part of the statement of purpose, a sufficiently broad range of activities the utility is allowed to undertake. The typical utility easement agreement will include language allowing the utility to “construct, operate, maintain and repair” its facilities. This may not adequately address all of the risks presented by another’s use of the area. Depending on the identified risks, it could be worthwhile to include that the utility may “protect” its facilities and “remediate” conditions that jeopardize them, and may want to extend the area it can undertake those activities outside of the defined right-of-way.
In conclusion, utilities should consider adopting a risk-based approach to manage rights-of-way and reflect the results of risk assessments in easement agreements. This can be done on a prospective basis when a utility acquires a new or enlarged right-of-way. Utilities may also want to consider using risk assessments to identify areas where significant risks exist and proactively re-negotiate the applicable easement agreements to include provisions that eliminate or lessen those risks.

To learn more, download the Pathways to Success for Utilities Guide or contact any member of Ice Miller's Energy and Utilities Law practice group.  

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