Rivers within your cultural borders are supposed to work like this.
I did not know this...

This I know; I've been playing FFH off and on for a long time. I never exploit this bug, do you know if the AI will?Bug or feature, this has been around for a long time.
Also, does it only affect the Ljosalfar (which means it's probably a feature after all), or all races?
It would be funny that the elves would have the ability to whack forest from day one, since they mostly want to build it up. It does lead to a sick tactic of chopping forests to build things in your city and then using your magic to regrow the forest instantly.... but I 'spose anyone can do that ultimately.
I believe you also have to have enough gold to buy the upgrade.You have to upgrade your adventurer to another unit type before you can spend his XP.
Having the gold to pay for an upgrade is a requirement of performing all upgrades, no?

[Sadly our intrepid adventurer died (along with his 25 xp and level 1) when he was eaten by a Grizzly Bear out in the wilderness. Sad that I did not know to bring him home and upgrade him. LAWL.]
Thanks for the great game, keep up the good work.