Drawing Up a Wind Farm Lease Agreement: Ultimate Checklist
 Topic: new wind farm |  Read Time: 7 mins |
 Landowner type:Independent landowners | Institutional landowners |  Energy: Onshore wind |
5th August 2024Are you in the process of drawing up a wind farm lease agreement and preparing for turbines on your land? Here’s everything you need to know about a wind turbine lease agreement (and what to avoid).
I understand that signing a 25+ year lease is a big commitment, so it’s crucial to review every clause carefully.
But what should you look for in a wind farm lease agreement?
Over the years, I’ve learned what to consider before signing with a developer.
From option agreements and income to management responsibilities, I’ll cover it all.
I’ve also included a handy checklist to guide you through the process.
Let’s dive into everything you need to know about signing a wind farm lease agreement.
Preparation Before Signing a Lease Agreement
Think about option agreements
Before July 2024, getting planning permission in the UK was a challenge, so developers often used lease option agreements to reserve suitable land for wind development.
This allowed them to secure land while waiting for planning regulations to loosen.
For landowners, option agreements are an important consideration before signing a full-fledged wind farm lease agreement. Think of it as step 0.
If you’ve not signed an option agreement yet, you’ll want to read on as this will form the foundation of your final lease agreement.
If you’ve already signed, you probably won’t be able to change many of the terms, so it’s important to plan ahead.
These agreements often benefit the developers more than the landowner. So, it’s worth understanding exactly what you’re signing up for.
If nothing else, always run your option agreement past a trusted and specialist solicitor before signing. It’ll help you catch anything you might have missed at first glance and can even help you secure better terms.
Leave plenty of time
This is especially important for wind farm extensions, but it applies to any long-term project.
Rushing when signing contracts or agreeing on terms can lead to headaches later on.
The average wind farm lease runs for 25 years or more, with modern leases running for even longer than that.
Leaving plenty of time for discussion lets both parties voice concerns and create a mutually beneficial wind farm lease agreement.
And if any disagreements arise, you’ll have time to work through them without pressure.
In short, plan things out at least several months in advance.
Do market research
Leaving plenty of time to get things sorted, also gives you the opportunity to conduct market research.
Gather information about similar sites across the UK to understand what you should expect in terms of income.
Getting a Lumify SiteStart™ report is a great place to start if you want to figure out the potential value of your site.
I completely understand that it’s tricky to know what a fair rate is when negotiating contract terms.
With solid facts and figures to hand, you’ll be in a much stronger negotiating position when dealing with developers.
The SiteStart™ report compares your site location, payment rates and energy type with other sites across the country, providing a clear, jargon-free report for your negotiations.
It’s also helpful to research similar wind farms and any developers who approach you to ensure they align with your goals.
Start this process early, but aim to complete it before signing an option agreement.
Approach experts
Before you enter into a wind farm lease agreement, it’s always worth approaching experts.
Solicitors, land agents and financial experts are all worthwhile sounding boards for new projects.
Land agents will provide a great overview of different sites and their current earnings, which is particularly useful if a developer presents their portfolio as the main selling point.
Solicitors can examine any fine print and explain or rework terms that might be overly complex, ensuring you fully understand what you are signing.
Finally, experts like accountants, though sometimes overlooked, are crucial for determining the viability of a project.
Not only can they obtain power purchase agreements from operators down the line, but they will also help reconcile payments during your lease period.
How’s that for getting your money’s worth?
Lease Contents and Signing – What to Consider
Leases can be quite intimidating as they’re often 50-or-so-page documents packed with lots of legal jargon, but there’s no need to feel overwhelmed.
As a landowner, it’s important to know what to consider before signing on the dotted line, from mid-lease options to management responsibilities.
Let’s break it down.
1. Think about mid-lease options
Landowners can sometimes be short-changed during their lease because of inflationary factors or a mismatch between their site’s value and market rates.
Across an average lease period, market rates, expected rental income and even the cost of living are bound to fluctuate.
While this isn’t necessarily intentional by the operator, it’s important to address potential changes to your rental income.
To help avoid this problem, I always suggest that landowners work a mid-lease option into their agreement so they can reassess terms at any pre-agreed point during their lease’s life.
With the right data in hand, you’ll be able to up your rental rates without much pushback.
2. Income considerations
Before signing, carefully consider your income and payment arrangements.
And that often means carefully checking your payment arrangements and working inflationary rises into your agreement.
It’s only fair that you get adequately compensated for the use of your land, but the right payment arrangement depends on you.
If you’re happy with a steady, predictable income, a fixed payment arrangement may be the right call.
However, if you want a share of the site’s profits, a hybrid arrangement offers the potential for higher returns, but with more risk.
And when it comes to inflationary bake-ins (making sure the annual rental income increases with CPI)?
This just makes sure you’re not receiving a real-terms pay cut every year.
3. Property considerations and land impact
If your land is suitable for a wind farm, consider how turbines will impact it.
There’s always the risk of damage to crops during the building of access roads and turbines.
Ideally, you’ll want your land returned to its original condition at the end of a project’s life.
Ensure your wind farm lease agreement includes a clause requiring the developer to restore the land to excellent condition, with any damage clearly measurable. This will provide a clear framework for assessing damage, reducing the potential for disputes.
This way, you can lease your property to a developer without fear of losing bundles of cash trying to restore it!
4. Monitoring and management
Monitoring and managing a wind farm is a major job, but most of this shouldn’t fall on a landowner – unless you’re planning to front the costs and responsibility of the project as a landowner-developer.
During the management and monitoring phase, the most important thing will be tracking payments and receiving rental income.
You can keep track of this with the help of a reliable accountant or get a full picture of your site’s performance with the Lumify SiteView360.
Worried You’re Leaving Money on the Table?
Our analysis shows 85% of landowners may be underpaid.
Our LUMIFY SiteView360™ solution checks your site’s true value and highlights any back payments you might be owed.
It’s also worth investing in a deep dive to uncover any missed payments once the project is up and running.
In addition to tracking payments, ensure that responsibilities are clearly outlined in the lease agreement.
This should cover the maintenance required during the project’s lifetime and who’s responsible for each aspect of upkeep.
By outlining this clearly, you’re unlikely to face disputes with your site operator down the line.
5. Decommissioning and exit strategies
The final thing to consider before signing a wind farm lease agreement is what happens at the end of a project’s life.
You have the choice to extend your wind farm lease if you wish. But if you plan to decommission the project (or if it reaches the end of its operational life), there are a few steps to take.
The decommissioning process usually lies with a developer, so it’s important to have this stated in the lease agreement.
It’s also important to have a viable exit strategy in place in case issues arise during the process.
Given that a wind farm project is often a multi-million-pound venture, landowners should understand their rights when it comes to reclaiming their land.
While the developer will typically have secured appropriate financing for the project at the outset, it’s important to include a clause in your wind farm lease agreement regarding creditors.
This should make it clear that you’re not responsible for paying off creditors should the developer abandon the project.
In any case, you must have enough money set aside for the decommissioning process.
While developers usually cover these costs, it’s technically a landowner’s legal responsibility to ensure the turbines are removed.
Other Things You May Want to Think About With a Wind Farm Lease Agreement
I’ve mentioned lots of important things about signing a wind farm lease agreement, but here are a few final considerations to keep in mind before signing anything.
Making use of the energy
If all energy isn’t being sold to the Grid, it may be worth considering using the energy for another project.
This can be assigned to off-takers, but some landowners have associated projects that use the wind farm’s energy.
For example, Dewlay Cheesemakers use their onsite turbines to supply the energy needed for their dairy production.
This is especially beneficial in an energy-intensive industry like dairy production.
Grid connection ownership
Grid connection ownership can become a point of contention if a project faces issues.
A developer will usually seek Grid connection when they identify your land as suitable for wind development.
However, if you want to take over the Grid connection for a different project, you’ll need to cancel the current agreement and reapply.
Most site operators won’t want to relinquish their Grid connection as it’s a highly valuable commodity.
But as the landowner, you’re technically allowed to reclaim it for yourself.
Just be sure to check your lease agreement before you take any action.
Landlord and Tenant Act
The final thing you’ll want to consider before signing a wind farm lease agreement is the Landlord and Tenant Act 1954.
This agreement has a few crucial sections that you’ll want to keep an eye out for.
But the main thing that you should do before signing a lease is to opt out of Sections 24 – 28 of the Act.
Opting out of these sections gives you far more control over what happens to your land at the end of a lease.
Otherwise, your tenant may have the right to simply carry on the rental contract even if you don’t want to.
It can also make removing site operators more difficult, leaving you with less control. Be sure to carefully consider this before entering negotiations.
Final Thoughts
As you can see, there are several important things to think about before signing a new wind farm lease agreement.
With expert help, plenty of market research and a solid exit strategy in place, you’ll be well-positioned to make informed decisions.
Even if you’re feeling confident, it’s always worth checking in with experts to keep your lease watertight.
This way, you can walk into contract negotiations with confidence.
If you need any further guidance on signing a wind farm lease agreement, just get in touch with the team at Lumify Energy. We’ll be happy to talk you through your options and uncover the true value of your site.
