Back to: Tenure Toolkit
When deciding whether to proceed with a forest licence opportunity, a critical step is to assess any encumbrances—extra agreements, obligations, or conditions that could affect the business once the licence is transferred.
After confirming community support and a viable business opportunity, assemble a due diligence team to review the forest tenure agreement, related contracts, and any liabilities and assets.
Your Due-Diligence Team
- Forest professionals: Identify and develop forestry licence opportunities, prepare a forestry business plan, and evaluate inventory and business viability (see Module 3).
- Lawyers: Review purchase and sale agreements and licence documents, assess risks, ensure regulatory compliance, and structure agreements to protect the Nation’s interests.
- Accountants: Evaluate payment terms, confirm the most effective structure for the First Nation economic development company, and maximize taxation savings.
Understanding Encumbrances
Encumbrances are any additional agreements attached to a forest tenure purchase that may create risk after transfer. Ideally, a new forestry licence comes without encumbrances beyond what the Ministry of Forests requires to operate. In practice, some licences come with long-term industry contracts. A new licensee should not be responsible for cleaning up lands and waterways left by a previous licensee.
Items to Review (and classify as Liability or Asset)
Treat each item below as a potential liability or asset—context matters. What is a liability for one business may be an opportunity for another, depending on local conditions.
- Logging and road-building agreements: Bill 13 contracts, evergreen contracts, woodland agreements, or other grandfathered contracts tied to a specific contractor. These are separate from the Ministry of Forests licence and may be included in an industry sale (i.e., an encumbrance). They can also be an asset if experienced local crews and clear “how we work together” terms are in place.
- Grandfathered fibre supply agreements: Existing local contracts with fair terms may be viewed as assets, even though taking them on is not ideal.
- Roads, bridges, and other infrastructure: Not part of a BC forest licence. They may or may not be included in a transaction. Ensure areas are left tidy; complete environmental assessments and professional document reviews, plus on-the-ground inspections. A Nation should not be required to complete reclamation for a departing licensee.
- Silviculture liability and road deactivation: A new licence should not inherit the previous licensee’s silviculture and deactivation obligations; however, the new licensee should understand the current status of silviculture and roads in the licence area.
Factors That Impact the Purchase Price
- Silviculture liability: Choosing to assume this liability does not reduce overall costs—silviculture work still must be completed.
- Standing inventory costs: Purchasing pre-planned cut blocks and road layouts may increase upfront costs, but can shorten the time to become operational.
- Bridges and other infrastructure: Can improve access to traditional territory (asset) but may increase the purchase price.
What to Do with Liabilities
Any potential liabilities should be reviewed by qualified professionals (forest professionals and lawyers) to:
- Analyze the terms in each contract,
- Determine whether to renegotiate or buy out the agreement,
- Classify the item as an encumbrance warranting a price reduction, and
- Ensure the new licensee is indemnified from responsibility for any past industrial damages to lands and waters in the territory.