Read Before You Sign: What Forestland Owners Need to Know About Biomass, Biochar, Carbon, and Other Forest Revenue Agreements

In the United States, an estimated 9.6 million families, individuals, trusts, estates, and family partnerships own 110 million hectares of forestland, or about 39% of the country’s forests.[1] Family forests also supply an estimated 42% of the annual wood harvested in the United States.[2]

This surge in interest is being driven by several factors, including growing ESG demand from corporate buyers, new federal incentives such as tax credits under the Inflation Reduction Act, rapid growth in the voluntary carbon market, and increased interest in forest-based climate solutions. Forestland ownersare being approached with new revenue opportunities beyond traditional timber sales. Biomass supply agreements, biochar projects, carbon credits, conservation easements, mitigation programs, renewable energy arrangements, and other emerging markets can create real value. They can also affect property rights, title, management discretion, financing, future sales, and succession planning.

That is the issue forestland owners need to keep front of mind. A deal that starts as a new revenue stream may also operate as a long-term restriction on how the land can be used, managed, financed, or transferred.

1.             What Rights Are You Granting?

In a traditional timber sale, the tradeoff is usually clear: merchantable timber, identified harvest areas, and agreed payment terms. But the issues presented by newer forest revenue agreements can be murkier.

A biomass agreement may cover slash, small-diameter trees, diseased material, fuel treatment byproducts, or all forest residuals. A biochar project may involve feedstock rights, on-site processing, equipment staging, soil application, and carbon benefits; in addition, biochar projects are structurally distinct from biomass or carbon deals because they often require the conversion of forest residuals into a charcoal-like material through pyrolysis, which may necessitate on-site or nearby processing equipment. The market for biochar is still developing, with limited standardized verification or pricing mechanisms, and such deals may bundle feedstock rights, processing rights, soil application rights, and carbon or environmental attribute claims in ways that are not always clearly separated. A carbon or conservation agreement may restrict future harvest activity, require monitoring, limit development, or impose long-term obligations.

In general, a good agreement needs to say what material is included and excluded, who owns byproducts, who owns environmental attributes, who owns credits or offsets, and whether the obligations bind only the current owner or also future owners. The label on the document matters less than its practical effect. Some agreements operate like easements, covenants, options, or long-term leases even when they do not use those words. The regulatory framework governing the agreement is important, as voluntary carbon markets, compliance carbon markets, and state or federal conservation programs operate under different rules, verification standards, and legal requirements. Owners need to understand which framework applies to their deal and whether applicable rules could change during the agreement term.

2.             Who Has Authority to Sign?

Forestland is often held through family entities, trusts, partnerships, limited liability companies, corporations, or multigenerational ownership groups. Before anyone signs a long-term forest revenue agreement, the owner must confirm that the person signing has authority to bind the land.

An LLC manager may have authority to sign ordinary operating contracts but not a long-term agreement that encumbers the property. A trustee may have duties to current and future beneficiaries. A partnership or corporation may require additional approvals. A tenant in common (a co-owner who holds an undivided share of the property) generally cannot commit the entire property alone.

The longer and more restrictive the agreement, the more important authority becomes. A short-term biomass supply contract tied to a single harvest may be ordinary management. A forty-year carbon project is something else entirely. Before signing, review the governing documents and make sure the agreement names the correct legal owner and contracting party.

3.             Can You Still Manage the Forest?

A forest revenue agreement must not prevent the owner from managing the forest.

Operational restrictions can appear in many forms: limited access windows, required haul routes, staging restrictions, feedstock specifications, monitoring duties, road limits, harvest restrictions, carbon protocols, conservation obligations, or notice requirements before management changes. Any of these can affect thinning, reforestation, fuels reduction, wildfire response, pest treatment, salvage harvests, road maintenance, or future development.

If the owner needs discretion to manage disease, reduce fire risk, maintain roads, harvest after storm events, or adjust management plans, the agreement needs to say so. Forest conditions change. Agreements that assume static land conditions can create serious problems for a working forest.

4.             Who Bears the Risk?

Emerging markets carry uncertainty. Biomass demand may shift. Carbon credit values may change. Biochar projects may depend on developing technology, transportation, verification standards, or public incentives, while conservation projects may depend on agency approval, appraisal assumptions, or tax treatment.

An agreement related to these issues must answer who bears those risks. Some issues that frequently come up include who pays for verification, monitoring, reporting, insurance, equipment, road repair, environmental compliance, taxes, or third-party claims. Others include determining responsibility if operations damage roads, neighboring property, water resources, fences, culverts, or standing timber. Disputes also arise when the project generates fewer credits than expected, financing falls through, or applicable rules change.

Owners also need to identify affirmative obligations, not just restrictions. Reporting, audits, management requirements, recordkeeping, notice to future buyers, and third-party inspection rights may be reasonable, but they need to be understood and priced into the deal.

Owners need to know that different types of forest revenue agreements can have very different tax implications. For example, payments for biomass may be treated as ordinary income, while sales of carbon credits may raise questions about whether proceeds are characterized as capital gain or ordinary income, and conservation easement donations may generate charitable deductions that are subject to IRS scrutiny. Owners are strongly encouraged to consult with qualified tax counsel before entering into any such agreement.

5.             How Will This Affect Title, Financing, and Future Sale?

Some forest revenue agreements do not just affect operations. They affect the land itself.

A future buyer, lender, or title insurer will want to know whether the property is subject to carbon commitments, conservation restrictions, access rights, supply contracts, options, leases, licenses, easements (rights granted to others to use a portion of the land for a specific purpose), or other encumbrances (claims, restrictions, or obligations that attach to the property). The agreement must state whether it will be recorded, whether it binds successors and assigns, and whether the owner can sell, refinance, grant easements, enter conservation programs, or conduct future harvest activity without consent.

A useful test is this: if the property were marketed for sale next year, would the agreement be viewed as an asset, a burden, or an unresolved risk?

6.             Can You exit the agreement?

Long-term forest revenue agreements need to address how the relationship ends. Termination provisions matter as much as the initial grant of rights.

Any agreement must specify whether either party can terminate early, under what conditions, and what notice is required. It must address what happens on a material breach — whether the owner can cure, whether the counterparty can seek damages, and whether the owner can recover the land free of restrictions. It must also address what happens on the owner’s death, a forced sale, condemnation, or a catastrophic event such as wildfire or disease that destroys the subject timber or feedstock.

Some agreements include buyout provisions that allow the owner to exit by paying a fee or returning a portion of payments received. Others are silent on exit entirely, which can leave the owner bound for the full term regardless of changed circumstances. Before signing, understand whether the agreement can be unwound, at what cost, and under what conditions.

The Bottom Line

New forest revenue markets can create real value. Biomass, biochar, carbon, conservation, and residual wood opportunities may support forest health, improve project economics, and connect private landowners to evolving environmental and energy markets.

But a working forest is not a passive investment. Agreements that affect access, harvest rights, management discretion, carbon rights, conservation values, title, financing, or future land use deserve careful review. Owners are strongly encouraged to consult with a forestry attorney and tax advisor before being approached by buyers or developers, so they can evaluate potential deals from a position of knowledge rather than urgency.

Endnotes

[1] Brett J. Butler et al., “Studies of Family Forest Owners in the USA: A Systematic Review of Twenty Years of Research,” USDA Forest Service, General Technical Report NRS-199 (2020), reporting an estimated 9.6 million family forest ownerships controlling 110 million hectares of forestland, or 39% of U.S. forests.

[2] Brett J. Butler et al., “Wood Supply from Family Forests of the United States: Biophysical, Social, and Economic Factors,” Forest Science, reporting that, as of 2018, an estimated 42% of annual wood harvested in the United States came from family forests.

About the Author

Lindsey Morgan is an attorney in Fennemore’s Business Litigation practice group, based on Coeur d’Alene, Idaho. She represents clients in complex business, real estate, and commercial disputes involving significant financial and operational risk, with a focus on forest industry and landowner matters. Her work spans the full arc of a dispute — from identifying pressure points before conflict arises to protecting property and contract rights when it does. When she is not untangling ownership disputes and litigating complex business issues, Lindsey likes to be out in the woods. She can be reached at lmorgan@fennemorelaw.com.