Solar Leases: Landowner Considerations
Background
Solar developers are currently seeking parcels of land in New York State that are suitable for installing solar arrays. If a solar developer offers you a lease agreement, you want to ensure that the terms of the lease are fair and clearly identify who is responsible for certain obligations. Attorneys who understand solar lease agreements can review proposed leases, identify potential areas of concern, and assist you with negotiating lease terms.
Is Your Land Suitable for Solar Arrays?
Solar developers are looking for sizable parcels of land, starting at approximately 10 acres, for the installation of large solar arrays. Solar developers also look to several additional factors such as zoning regulations, road access, the presence of wetlands on site, the presence of sun-blocking obstructions on or near the site, sloping on the land and whether the site is located near an electrical substation. Discussions regarding the suitability of your land may be initiated by either solar developers or landowners. If a solar developer approaches you about leasing your land, this likely indicates that the developer already believes your land is suitable and is interested in pursuing a lease agreement.
Solar leases often contain provisions addressing the inspection and development of the site. This means that the exact location of the solar array area may not be defined until the solar developer conducts tests and obtains necessary approvals, which may occur after the lease is signed. During this process, you can talk to solar developers about the siting of solar arrays on your property and ensure that the solar lease contains a provision defining the project area using an approved site plan or map. If the site area will not be finalized until after the lease is signed, a provision can be added to allow you to review the site plan and provide reasonable comments before it becomes a binding part of the lease.
Solar Lease Finances
Solar leases can provide landowners with a stable, predictable stream of income for a substantial time period. Solar leases typically last longer than a decade and often include options which permit solar developers to extend the term of the lease upon the expiration of the current term. While you will ultimately need to determine whether the proposed rental payments are acceptable to you, you can ensure you get the best deal possible by contacting multiple solar developers, researching the going rate for land leases in your area and by adding provisions to your solar lease pertaining to minimum rent payments and rent increases as the lease term progresses.
There are several potential costs associated with solar leases. For example, you may be subject to a monetary “conversion payment” if you currently receive an agricultural assessment and then convert your land to a nonagricultural use. Additionally, a solar energy system is considered taxable “real property” after it becomes permanently affixed to land or to a structure. Although these expenses could become a landowner’s responsibility, solar leases often contain provisions allocating the responsibility to the solar developer to pay for such costs attributable to the project.
How can an Attorney Assist You?
An attorney can assist you with reviewing solar lease agreements proffered by solar developers, who often have their own attorneys prepare the agreements. In addition to the issues discussed above and notwithstanding additional matters that may appear in an individual proposed solar lease, an attorney can help you consider the following topics:
- (1) Defining the Scope of Easements
- The lease should identify the easement(s) that you will provide the solar developer. You should consider adding a provision requiring all easement areas to be depicted on an approved site plan that will be included as part of the lease agreement.
- (2) Decommissioning and Restoration of Land
- It is important to ensure that there are clear provisions detailing the decommissioning of the project once the lease ends. This includes (i) when decommissioning is to take place, (ii) identifying the solar developer as the party responsible for performing decommissioning obligations, and (iii) ensuring that there is an appropriate decommissioning security in place. The lease should also contain a provision requiring the solar developer to restore the land to the state that existed immediately prior to the commencement of the lease.
- (3) Defining the Project’s Phases
- Solar leases may provide for different phases, such as an inspection period, a development term, and/or an operations term. It is imperative that these phases have a well-defined beginning and end, as different phases may be subject to different lease provisions and rental values.
- (4) Defining the Rights and Obligations of the Parties
- Solar leases often describe the rights and obligations of the parties pertaining to topics such as assignments, non-interference, site access and receiving assistance with obtaining necessary permissions required for the project.
- (5) Insurance and Indemnity
- Solar leases often contain a provision requiring the solar developer to obtain and maintain insurance covering the project’s activities and a provision requiring the developer to indemnify you if it breaches its obligations.
Having an attorney review your solar lease can allow you to think through these issues before a dispute arises and ensure that you are comfortable with leasing your land before signing an agreement proposed by a solar developer.
This is not to be considered legal advise. Please reach out to an attorney for information regarding your specific situation.
Alexander Main is an Associate concentrating municipal, environmental and land use law.
He can be reached by phone 845-764-9656 and by email.
