Asset sales involving the disposition of recreation-focused businesses on federal lands, including ski areas and guiding companies, require the buyer to obtain a new Special Use Permit (SUP) from the U.S. Forest Service (USFS) or a Special Recreation Permit (SRP) from the Bureau of Land Management (BLM). The SUP or SRP is key—without it, the buyer cannot legally operate the assets on federal land.
In an asset sale that does not involve federal land, the seller and the buyer agree on closing conditions that must be satisfied prior to any money changing hands. Customary conditions include title to the assets, assignment of contracts and hiring current employees. The goal is to provide the buyer with everything needed to operate the business immediately after the deal closes.
When a SUP or SRP is involved, closing is more complicated because the permit cannot unilaterally be transferred from the seller to the buyer. In fact, a SUP or SRP cannot be transferred at all; instead, the relevant agency must review a new permit application from the buyer and issue a new permit. Although the agencies commonly call this process a “re-issuance” or “transfer,” the permit issued to the buyer is a new permit, not an assignment of seller’s permit. SUPs and SRPs are not leases or other types of property rights; instead, these permits are limited licenses granted by USFS or BLM to the permit holder to operate on federal land for a specified time period pursuant to a set of agreed-upon parameters, including those that may be provided in an operating plan.
Five Tips to Ensure the Buyer Obtains the Necessary SUP or SRP
First, coordinated communication with the federal agency is crucial to avoid administrative delays. In the purchase contract, the parties should designate the people responsible for agency outreach and set response times for providing requisite information/applications to the agency. In most cases, the seller will have a working relationship with the agency and will be best suited to initiating the outreach.
Second, the parties should not mandate reissuance of the SUP or SRP as a condition to closing because USFS and BLM do not allow the seller to attach a value to the SUP or SRP and the transaction must close before USFS or BLM will reissue the SUP or SRP. Commonly, the buyer will therefore agree to close with the permit reissuance occurring shortly thereafter. If the buyer (or its lender) cannot get comfortable with this concept, an alternative arrangement is to conditionally close in escrow, allowing the parties to represent to the federal agency that the transaction is conditionally closed, and the seller will gain comfort in relinquishing its operating rights because the funds are in escrow. With this arrangement, the parties should negotiate a maximum escrow period and make alternative plans that provide for either a termination of the transaction or a closing with an operating plan whereby the business continues to operate under the seller’s existing SUP or SRP until the reissuance is completed.
Third, the parties will negotiate customary representations and warranties whereby the seller should represent that the SUP or SRP is in good standing. However, early in the diligence period, the parties should request that USFS or BLM provide a status letter and conditional transfer approval letter to give the buyer further comfort.
Fourth, the buyer should understand the applicable federal regulations governing the transaction but should also be cognizant that each local USFS or BLM office may have its own set of procedures and timelines that will apply to the permit application and reissuance process. Early in the diligence period, the parties should meet with the local office to discuss the process.
Fifth, and finally, the parties can take steps to maintain confidentiality to the extent practicable to facilitate the success of these transactions. While pre-closing disclosure cannot be entirely mitigated between the seller and buyer because a government agency is involved, USFS and BLM certainly understand the sensitivity and the parties can reduce the risk of disclosure of sensitive commercial or financial information by including a confidential business information (CBI) request with all such materials submitted to the federal agencies and marking all documents as “CBI.” A CBI request asks the agency to prevent disclosure of the materials under the Freedom of Information Act (FOIA) in the event a FOIA request is made for information related to the transaction. Finally, both the buyer and seller should clearly communicate confidentiality policies and expectations to their teams.
In September, Brownstein represented Silverton Mountain in a successful asset sale transaction to Heli Adventures. To our knowledge, this transaction was the first-ever transfer of a BLM lease and reissuance of a BLM SRP for a ski area. Brownstein also has extensive experience in asset sale transactions on federal lands managed by USFS and associated SUP reissuances.
This document is intended to provide you with general information regarding asset sales involving the disposition of recreation-focused businesses on federal lands. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.