Mining operations are often conducted on leased lands. As with any lease, disputes may come up between the landowner/lessor and the mining company/tenant. Over the last few years I’ve dealt with multiple situations in which the landowner either made, or threatened to make, complaints about the mining operation to regulatory agencies. In some situations the landowner tried to prevent the mining operator from obtaining permits the mine needed to operate. This type of situation may arise for various reasons other than dissatisfaction with the mine’s operations. For example, the landowner may feel that the royalty payments are inadequate and that he could get a better deal from another mining company. The landowner also might have been approached by a potential buyer who wants to use the land for a different purpose, such as residential development. The landowner may complain about the operations to a regulatory agency in an effort to harass or shut down the operations. In California, this situation can be particularly difficult to deal with, as the lead agency under California’s Surface Mining and Reclamation Act (“SMARA”) is usually the local county, with whom the landowner may have close personal contacts at the staff level.
In these situations, particularly in the early stages of a dispute, it is important to remember that the landowner cannot act as if he is just another member of the public. Rather, the landlord is bound to act in accordance with the terms of the lease, which includes both express provisions and covenants implied by law. For example, a lease may contain a provision requiring that the landlord cooperate in obtaining all “regulatory permits” needed to operate the mine. A lease may also have an arbitration clause that provides that “all disputes” between the parties must be submitted to arbitration. Arguably, “all disputes” encompass issues relating to whether the mine is complying with a regulatory requirement. For example, in a situation where a lease contains an arbitration provision, a mine operator can ask the arbitrator to appoint an independent expert to evaluate the landowner’s complaints.
Often overlooked in a dispute, particularly as to a landlord who has carefully reviewed the lease, is that the law implies certain provisions in all leases. In particular, in every lease there is an implied covenant of good faith and fair dealing that requires each party to not do anything that will impair, destroy or injure the rights of the other party to receive the benefits of the lease that the parties reasonably contemplated when they entered into the agreement. Obviously, this provision is quite broad and fills in gaps that may not have been expressly set out in the lease. As with any material lease provision, a landlord who violates the implied covenant of good faith and fair dealing may be liable to the mining company for damages.
Accordingly, it can be very helpful in the early stages of a dispute to remind the landlord of these requirements, so that the landlord does not feel free to make complaints to regulatory agencies about the operations.