What Is a Surface Lease and How Does It Work in Alberta?

If there is a well site on your farmland, or a company wants to put one there, you probably have questions about what you have agreed to, what the company owes you and what can change over time. A surface lease is the usual way those terms are set out.

This article explains in plain language how surface leases fit into Alberta's rules on surface and mineral rights, what the company must do first, and what payments and review rights you should know about. Your own lease or order will have its own terms, so use this as a guide to the questions to ask.

This article covers the law of Alberta.

What a surface lease is and why it exists

In Alberta, owning the surface of land is separate from owning the minerals under it. A surface owner owns the surface and substances such as sand and gravel, but not the minerals. The mineral owner may explore for and recover minerals, but must do so reasonably so as not to significantly affect surface use.

A surface lease is the written agreement that deals with the company's use of the surface. It covers things like the land taken for a well site, what the company pays you and how long the arrangement runs. Parties can sign a surface lease agreement, which includes right of way agreements and easements, to replace a right of entry order.

The company in these arrangements is usually called the operator. Under the Surface Rights Act, an operator is generally the person with the right to a mineral or the right to work it, or that person's agent, and the term also covers certain pipeline, power line and telephone line holders.

What the company must do before it enters

Under the Surface Rights Act, an operator may not enter the surface for specified purposes until it has the consent of the owner and the occupant of the surface, or an order of the Land and Property Rights Tribunal. If it cannot get consent, it must apply to the Tribunal, and the application must include its most recent written offer and proof the offer was refused.

• Consent from the owner and the occupant, or a Tribunal order, before entry.
• A payment of 80% of the compensation offered in its written offer for the first compensation year, paid to the owner or occupant or to the Tribunal, before the operator can enter.
• On freehold land only, a legislated entry fee paid before entering.

There are exceptions. The entry fee and 80% prepayment rules do not apply to certain gas distributors, certain rural electricity associations and local distribution system operators exempted by regulation, and orders made before July 4, 1983 are also exempt.

Payments you can expect

Several different payments can be involved, and they are not the same thing. The entry fee under s.19(2) is the lesser of $5,000 or $500 per acre granted to the operator, with a minimum of $250 for land under one acre, payable per titled unit and in addition to compensation.

Compensation is a separate amount. When the Tribunal sets it, it may consider market value between a willing seller and a willing buyer, loss of use, adverse effect on the remaining land, nuisance, damage to the land and any other factors it considers proper. It may also award interest at the Bank of Canada rate.

What a particular lease pays depends on its terms and on negotiation, so it is worth having a lawyer or land professional review any offer before you sign.

Rent reviews, disputes and enforcement

Rent under a surface lease or right of entry order is reviewable. The operator gives notice on or within 30 days after the 4th anniversary, and then every 5th anniversary; if the parties cannot agree, either may apply to the Tribunal.

If you disagree with a compensation order, the operator or any respondent named in it may appeal to the Court of King's Bench on the amount or the payee, and notice of appeal must be filed within 30 days of receiving the order.

If compensation under a surface lease goes unpaid, the Tribunal has enforcement powers under s.36, and for that purpose the word operator is defined more broadly, including successors and agents.

What to do next

• Find your lease, right of entry order or any written offer, and read the payment, term and review provisions.
• Check your certificate of title and confirm who owns the minerals.
• Diarize the review dates, remembering that notice is due on or within 30 days after the 4th anniversary and then every 5th anniversary.
• Keep records of payments received and any damage or disruption to your land.
• Speak with a lawyer before signing a new lease, settling a dispute or filing an appeal, since the appeal period is 30 days.

Frequently asked questions