Creating a Lease for a Landfill Gas Project: Best Practices

Are you unsure of what goes into creating a lease for a landfill gas project in the UK? Join me as I run through the key things you’ll want to think about.

Creating a lease for a landfill gas site in the UK is a complex – but potentially beneficial – venture for landowners and councils.

As the country strives to reduce emissions and move towards net zero by 2050, landfill gas sites remain a valuable energy source. This is especially true for councils seeking alternative income streams amidst tightening budgets.

Understanding the intricacies of how these leases work is crucial for securing favourable terms while ensuring sustainability and regulatory compliance. So, in this post, I’ll guide you through the essential considerations for creating a lease for a landfill gas site.

From lease duration and compensation models to protecting the land’s long-term value and ensuring proper decommissioning, I’ll cover it.

Why Should Landowners Be Interested in Landfill Gas?

Landfill gas projects are quite complicated, as rising emissions are what we’re technically trying to avoid on the country’s way to net zero.

As of 2023, there were 454 operational landfill gas sites in the UK. This figure is less than the 2017 figure, which reported 464 plants across the country.

Now, while this is heading in the right direction for reducing methane, carbon dioxide and water vapour emissions, it’s still a relatively high number of sites across the country.

Landfill gas sites aren’t being encouraged in the same way as wind or solar projects around the UK. This is largely because these sites rely on creating and burying waste instead of harnessing naturally occurring energy. While sites are generally regulated robustly, hydrogen sulphide levels at sites like Walleys Quarry are becoming quite problematic.

Take advantage of the supply now

The energy from landfill gas sites is finite. As a result, many sites will eventually become redundant as the supply reduces.

In theory, most landfill gas sites will be closed within the next 50 years, with the country moving to other forms of energy as a priority.

But if the gas exists on a landowner’s property, it’s well worth taking advantage of the supply while it lasts. In my experience, these landowners usually want to renew their existing contract on the best possible terms.

Curious about what comes next for landfill gas as reserves decline? To find out more, check out our ebook on the sector’s future.

Want to Stay Ahead of the Curve on Landfill Gas Opportunities?

Our essential guide breaks down what the end of ROCs means for landowners.

Whether you’re already hosting landfill gas infrastructure or exploring the opportunity, this guide will help you understand:

• How Contracts for Difference (CfDs) really work.
• What you need to know about strike prices, auction rounds, and revenue certainty.
• The pros and cons of entering a CfD agreement.

Get the guide now and make informed decisions about the future of your site.

Download the Free Guide

Generating a consistent revenue stream

For councils and many institutional landowners, landfill gas sites can be an excellent way to reap the financial rewards from a site before it becomes defunct. This is especially true for councils that are trying to find alternative sources of income to fill any shortfalls.

So, from an economic perspective, the development of landfill gas-to-energy projects can transform waste management challenges into a beneficial asset. Councils can partner with private companies to invest in infrastructure that captures and processes landfill gas, generating electricity or heat. This energy can then be sold to the National Grid or used locally to provide a consistent revenue stream.

Contributing to a circular economy

At the same time, using landfill gas for power isn’t exactly a new or groundbreaking move. It’s something that’s been happening for over 20 years, with gas reserves dipping significantly as each year passes.

It’s also important to mention that it’s a legal requirement under the Landfill Directive of 1999 for sites to capture and use landfill gas to generate electricity wherever possible. This directive aims to reduce the negative effects of landfilling waste on the environment and human health. So rather than being a voluntary green initiative, it’s been a standard part of managing landfill sites for quite some time.

That said, it has helped councils tap into an extra source of income over the years. Not only has this reduced some of the pressure on funding from council tax or business rates, but it’s actively boosted revenue.

While many of these landfill sites are now nearing the end of their productive lives, the environmental and financial benefits they’ve brought shouldn’t be overlooked.

What Makes a Site Suitable for Continued Landfill Gas Construction in the UK?

Before I dive into what creating a lease for a landfill gas project involves, let’s talk about what makes a site suitable for continued extraction.

A site’s suitability for continued landfill gas construction in the UK generally depends on several key factors.

This includes the quantity and composition of waste, the rate of gas production and the feasibility of long-term management.

Evaluating the suitability of a site

The process of assessing a site typically involves:

• A technical feasibility assessment to look at whether there’s enough gas to justify continuing the project

• Looking at the costs and revenue for the gas site and whether it’ll require other assistance or support to run

• A look at labour, financing costs, relevant taxes, permitting costs, insurance coverage, administration and site operation, and how this may impact the viability of the site

• Regulatory requirements, such as compliance with the Environmental Permitting (England and Wales) Regulations 2016

The assessments typically involve analysing geological conditions, waste decomposition rates and the presence of any leachate or groundwater contamination risks. Long-term land use considerations are equally critical, as councils must evaluate how the site will be used after landfill gas operations cease.

In the best-case scenario, balancing these considerations with regulatory compliance and community needs ensures that continued landfill gas construction supports sustainable waste management.

This means that councils and institutional landowners can prioritise energy production while minimising environmental impacts. In short, it’s a win-win.

The Key Elements for Creating a Lease for a Landfill Gas Site in the UK

When creating a lease for a landfill gas site in the UK, it’s crucial to have a clear understanding of how these leases are structured. After all, being well-informed about the terms and conditions puts landowners in a much stronger negotiating position.

A well-designed lease not only maximises income potential but also ensures that both parties’ needs are met throughout the agreement’s term.

So, let’s take a close look at the key elements of an average landfill gas project lease.

Outline lease duration and renewal terms

Standard landfill gas lease agreements typically last 20 years, with options for renewal depending on the economic viability of the site.

The duration may vary depending on the amount of gas remaining in the site and the overall potential of the project. For that reason, striking the right balance between flexibility and long-term stability is key.

For landowners wishing to secure additional income for an extended period, a longer lease may seem attractive. However, these come with certain risks, and it’s essential to have the lease thoroughly reviewed by a specialist to identify any potential pitfalls. Even minor errors in the lease terms or wording can significantly impact your future income.

Compare your rent with hundreds of wind farms across the UK

Get the best possible lease with help from the UK’s top solicitors

100% of landowners we work with increase their rent negotiation offers

Get in Touch

Consider the compensation models

The financial structure of a landfill gas lease is another vital element to consider for any council or institutional landowner.

Common payment models include:

• fixed annual payments
• revenue-sharing arrangements based on income or electrical output
• hybrid agreements combining both of the above approaches

Fixed payment structures offer reliable, predictable income, which may appeal to landowners seeking stability.

On the other hand, revenue-sharing or hybrid models provide the opportunity for higher earnings tied to the site’s performance, though they also carry greater risk if the project underperforms.

For local authorities or landowners opting for a hybrid or revenue-sharing arrangement, it’s important to assess how involved they want to be in the site’s operation and its output. These agreements naturally encourage a greater involvement in the project, so bear that in mind.

Think about adding a renegotiation clause

To avoid being short-changed during the lease period, it’s advisable to include a mid-lease renegotiation clause. This allows landowners to adjust lease terms to reflect the prevailing market rent at the time of renegotiation. While this may not be necessary for sites with minimal gas remaining, it’s worth considering for sites that may be viable for 20 years or more.

Over the span of a lease, economic conditions, market rates and living costs can change dramatically, which can erode the real value of fixed payments. So, by including a mid-lease reassessment clause, landowners and councils will ensure that their agreement remains fair and reflects current market conditions.

Define rights and responsibilities

Clearly outlining the rights and responsibilities of both the landowner and the operator is critical for any lease.

Landowners are generally responsible for providing access to the site for surveys, construction and operational activities.

On the other hand, operators are tasked with adhering to environmental, safety and operational standards, as well as ensuring the sustainability of gas extraction. For example, over-extraction must be avoided to protect the long-term gas output and prevent site degradation. (I’ll get to this in more detail later).

Responsibilities for site maintenance should also be clearly documented in the lease agreement to prevent future disputes.

This includes detailing who is responsible for:

• maintaining infrastructure
• repairing equipment
• addressing any environmental or operational issues that arise during the lease period

By defining these obligations from the outset, both parties can minimise misunderstandings and ensure that the site is managed effectively over the course of the agreement.

Best Practices for Creating a Lease for a Landfill Gas Site in the UK

Maximising output and protecting resources

A well-structured landfill gas lease should encourage developers to adopt best practices and technologies to optimise gas recovery while protecting the site’s integrity.

One way to achieve this is by requiring operators to use their best endeavours to maximise gas output without compromising the site’s sustainability. The lease could set benchmarks for energy production, ensuring efficient use of the resource while mandating compliance with environmental standards / regulations.

To achieve this in practice, there should be regular checks on project efficiency combined with strong management practices. This should help local authorities maintain optimal performance and protect the resource in the long term.

Robust monitoring

To ensure consistent and reliable monitoring of gas recovery, operators must implement a robust gas monitoring programme.

This programme should be designed to meet statutory and permit requirements and target specific measures required for permit compliance. Competent personnel must oversee the process, with a focus on quality assurance, quality control, or safety and environmental protection.

Regular interpretation and review of results ensure that monitoring data is both accurate and understandable, even to non-technical personnel. The monitoring programme should also be periodically reviewed against the objectives and conceptual model of the site, allowing adjustments as needed.

Include monitoring provisions and contingency measures

Understanding the site’s geology, potential emission pathways and environmental conditions are crucial for effective monitoring. While landowners are not directly responsible for managing these programmes, they should ensure these provisions are included in the lease agreement.

Additionally, contingency measures, such as lease renegotiation options, can help address underperformance in gas production or regulatory changes that may affect project economics. Termination clauses for breaches or force majeure events should also be built into the agreement to keep landowners safe from unexpected shocks.

Avoiding over-extraction

Preventing over-extraction is critical to maintaining the sustainability and safety of any landfill gas site.

This is because over-extraction can deplete gas reserves prematurely, reduce long-term yields and create significant environmental hazards. These hazards can include anything from destabilising the landfill to increasing the risk of fires around the site.

Include provisions for gas monitoring and management

To avoid the issues I’ve just talked about, lease agreements should include provisions that require careful monitoring and management of gas levels and extraction rates by the site operator.

Regular reporting ensures that extraction practices remain within safe and sustainable limits, preserving the site’s output over time.

Add provisions for proper maintenance and engineering standards

The selection of high-quality extraction equipment and control systems is equally important in preventing over-extraction.

Poorly designed or maintained gas collection systems can allow air to enter the landfill, increasing the risk of fires. Fires may also result from damaged systems or inadequate engineering of the gas collection infrastructure and landfill cap.

These environmental risks not only jeopardise safety but also reduce the economic viability of the site by severely damaging its long-term output potential.

By including provisions for proper maintenance and engineering standards in the lease, landowners can help mitigate these risks, ensuring both environmental and financial sustainability for its duration.

A handy checklist to prevent over-extraction

I’ve briefly discussed the concerns that can come with over-extraction. But I thought I’d give you a useful checklist to help you prevent over-extraction on your site.

It covers every base and includes everything from design stages through to managing moisture levels and calibrating site data during the project’s lifetime.

Work In Legal and Financial Safeguards

One of the main concerns of landowners creating a lease for a landfill gas project is legal and financial safeguards.

In my experience, landfill gas contracts can be complex. So, accounting for liabilities, insurance requirements and indemnity clauses are all critical things to think about before signing.

Compare your rent with hundreds of wind farms across the UK

Get the best possible lease with help from the UK’s top solicitors

100% of landowners we work with increase their rent negotiation offers

Get in Touch

Mitigate any risks

Landfill gas lease agreements should include indemnity clauses to shield landowners from potential liabilities. These liabilities usually include environmental fines or legal disputes.

Operators must also meet specific insurance requirements, and it’s important to ensure they maintain adequate coverage throughout the lease term to avoid any hiccups.

By including these safeguards, landowners and councils reduce their exposure to financial and legal risks associated with the site’s operation.

As penalties can be significant for large-scale sites, these clauses should be no-brainers for peace of mind.

Including a dispute resolution clause is also highly recommended for landfill gas sites, as disputes can arise over the lease’s lifetime.

Without such a clause, disagreements may escalate to court, which is not only costly and time-consuming but can also strain relationships between the landowner and operator. In my experience, disputes of this nature can cost hundreds of thousands of pounds and cost far more in terms of time and productivity lost.

To avoid unnecessary legal battles, consider including an expert determination clause in the agreement. This offers a cost-effective and straightforward method for resolving disputes while maintaining a collaborative relationship between parties.

The less formal nature of this process makes it more efficient and better suited to preserving a strong and positive working relationship.

Clarify Handover Procedures

With any new lease or renewal, it’s critical to clarify the handover procedures to avoid any disputes at the end of a lease period.

Decommissioning responsibilities

It is essential for a landfill gas lease to include clear terms for decommissioning responsibilities once the lease expires.

These terms should outline who is responsible for the removal of infrastructure and the restoration of the land to an agreed-upon state and stipulate strict timeframes. There should also be clear provision about the handing over of environmental permits, grid connection, ROC accreditation and other consents required for the continued operation of the site. If the site still has sufficient gas reserves for continued operation, provisions for repowering should also be considered.

Repowering involves updating or replacing equipment to extend the site’s operational life, which may require renegotiating lease terms.

Landowners should ensure that any decisions regarding repowering are clearly stated in the lease and supported by thorough documentation. This should help local authorities and institutional landowners avoid any hiccups at any stage.

Tips for Negotiating a Fair Lease for a Landfill Gas Site

Do your research

Before entering negotiations, it is essential to understand typical market rates and terms for landfill gas projects in the UK.

This knowledge ensures that landowners don’t settle for less than the site’s true value or enter into a new contract on poor commercial terms.

Taking the time to research the market puts landowners in a stronger position to secure a fair and competitive lease.

Prioritise transparency and leave plenty of time

Transparency is also a key part of any successful lease agreement. Both parties should clearly outline their expectations and obligations to avoid misunderstandings down the line.

It’s also crucial to leave plenty of time to draft and negotiate the lease. Rushing through the process can lead to oversight and missed opportunities to secure better terms.

The more time you dedicate to getting the details right, the smoother the agreement process will be.

Final Thoughts on Creating a Lease for a Landfill Gas Project

In my experience, creating a lease for a landfill gas project in the UK requires a collaborative and strategic approach.

If landowners and councils include the key elements of a lease in their discussions, they can secure agreements that balance financial rewards with environmental sustainability. And realistically, that’s the best of both worlds.

It’s also important to take the time to include safeguards (like dispute resolution clauses and exit provisions). Including these should help you mitigate risk and ensure the site’s long-term value.

Additionally, I always encourage landowners to engage UK-based legal, financial and environmental experts. This will ensure compliance with regulations and provide peace of mind throughout the lease term.

If you need a helping hand with creating a lease for a landfill gas project, get in touch. My team has helped countless institutional landowners and councils craft countless watertight leases for their sites.

By doing so, we’ve helped countless clients to negotiate excellent commercial terms and to obtain the best value from landfill gas projects on their land. In short, we take the guesswork out of the process.