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Landowner Dangers with Solar Options, Solar Leases and Solar Easements

By December 5, 2018Oil and Gas

By Dick Emens and Cody Smith

We are seeing more and more Solar Option and Solar Lease documents.

We are becoming more and more concerned for landowners because of the landowner unfriendly language in Solar Options, Solar Leases and Solar Easements! We do believe that developing and generating Solar energy on Ohio farmland can be beneficial to the landowners,  to Ohio,  and the USA, but it is vital that a Landowner only enter into Solar documents with a full understanding of the terms and language of the Solar documents.

Many landowners appear to become so dazzled by the “apparently large rent” payments proposed

In the Solar Lease, that the landowners do not focus on the problems of having the land tied up for 25-40 years or even forever. This article will list some of our major concerns with Solar Options, Solar Leases and Solar Easements. As background it is important to understand there are three key players in the Solar documents—the Landowner, the Developer, and the Lender.

We  start with key areas of concern in the Solar Options:

  1. Since the first document the Landowner is asked to sign is labeled “Solar Option”, often we have seen landowners believe they are not signing a “binding” document.  But the “Solar Option” is a one way document giving the Developer the option to tie up the land—there is no option for the Landowner to get out of the deal.
  2. In many cases the Solar Option is for several years, which ties up the land for all of those years!
  3. Solar Options often include significant Solar Lease terms within the language of the Option. The Landowner typically doesn’t focus on the Solar Lease when signing the Solar Option, believing the Solar Lease can be examined and revised if the Solar Option is ever exercised. But it may be too late to change those terms in the Solar Lease because they were already agreed to in the Solar Option.
  4. A similar problem can arise as to Solar Easements as Solar Easement terms are often included in the Solar Option.
  5. Solar Options usually contain terms obligating the Landowner to cooperate with the Developer in numerous ways and  assist with obtaining permits, licenses, approvals, variances, etc. While these provisions sound easy they can be very time consuming.
  6. The Solar Option can usually be assigned by the Solar Developer. While this is a small and apparently insignificant paragraph in the Solar Option, the Landowner will want to know with whom the Landowner is dealing now—and in the future.
  7. The provision that requires any dispute regarding the Solar Option to be handled by arbitration bothers us as it prevents the Landowner from having a dispute resolved in the local court.
  8. Probably the most important factors for a Landlowner considering signing a Solar Option or Solar Lease, are—the experience, reputation, and financial wherewithal of the Developer. A thorough investigation of all aspects of the Developer needs to be made early in the negotiation process,  and the Landowner will want to be satisfied on all aspects of the Developer.

Now let’s move to the Solar Lease, remembering that a number of the Solar Lease terms may have already been agreed to in the Solar Option.

Our largest concerns with most Solar Leases are:

  1. The Landowner is responsible for all environmental aspects of the property, and usually promises that there are no environmental problems. This can be a costly undertaking for the Landowner, especially if the Landowner recently acquired the property and doesn’t know what has happened on the property in the past.
  2. The Landowner will typically be agreeing to “GIVE” Easements for most any purpose the Developer wants. We capitalize “GIVE” because usually there is no compensation to the Landowner for these Easements. In a separate Article we plan to describe our concerns when a Landowner is giving Easements, or even granting Easements for compensation.
  3. Compensation is most often the reason a Landowner will want to sign a Solar lease. When a Landowner is first contacted by a Solar Developer the apparent “BIG DOLLARS” for rent are what appears attractive, especially when compared with the annual rent a Landowner may currently be receiving for renting his or her farm. What is often forgotten by the Landowner is the length of time the Solar Lease covers. We urge Landowners considering signing a Solar Option and/or Solar Lease to think about what the cash rent for the land was 25-35 years ago—and then think about  whether the compensation being offered for a very long term Lease is really that positive!
  4. Losing control of the land by signing a Solar Lease should be a major issue with the Landowner. Some Solar Leases have provisions that if the Landowner defaults in the terms of the Solar Lease, the Developer ends up with the property. Solar Leases need to have specific language that says that under no circumstances will the Landowner lose his/her land!
  5. Use of the land, during the Solar Option period, the development period and the operations period need to be fully understood by the Landowner. Often there is “talk” that the Landowner will be able to continue farming for a considerable time, but the language, especially as to the meaning of “No Interference,” needs to  protect the Landowner’s usage.
  6. The Landowner wants to have strong language in a Solar Lease providing for the prompt removal of all of the Solar equipment and related facilities once the Solar Lease terminates. It is vital that there be sufficient funds (that are not the Landowners) provided for in the Solar Lease to accomplish this removal.
  7. The Landowner will want to insist on having the Solar Developer provide sufficient insurance that protects the Landowner if anything goes wrong during the periods of the Solar Option and the Solar Lease.
  8. ”Payment of taxes”, recoupment of lost CRP, CAUV,  “Clean and Green” benefits, and “Minimum Acreage”, are other subjects  where  Landowners considering a Solar Lease want helpful language.
  9. Unfortunately a Solar Developer will likely insist that  the indemnity provisions in the  Solar Lease be mutual. This means that the Landowner may be required to indemnify the Solar Developer and those who take over the operations once the Solar energy is being created. It is very important that this language be looked at carefully by the Landowner.
  10. Usually a most difficult area of a Solar Lease, from the Landowner’s standpoint , is in the granting of rights to one or more lenders. Lenders appear to need very broad rights regarding the property and the Landowner needs to understand every word of the lender’s rights before deciding whether the Landowner wants to sign a Solar Lease.

We recommend that every Landowner considering signing a Solar Option and/or Solar Lease carefully consider this summary of our major concerns.