How to Get a Great Deal For Your Wind Farm Lease Extension
|Topic: wind farm extension||Read Time: 9 mins|
| Landowner type:
Independent landowners | Institutional landowners
|Energy: Onshore wind|
So, the wind turbines on your land have been operational for a number of years. And now you’ve been approached by your site developer to extend the life of the wind farm. What do you do? More importantly, how to get a great deal for your wind farm lease extension?
Unlike when the wind farm first became operational, you may not be the person who negotiated the lease terms back then. If not, there’s no reason to be concerned, as his article will get you up to speed on the latest developments in the industry and how to best navigate your wind farm renegotiations.
If you’re ready to walk into the renegotiation process with your head held high and leave the table with an optimal outcome, then simply read ahead.
What’s the difference between re-powering a wind farm and extending a project’s life?
Before we start discussing how to negotiate a great deal for your wind farm extension, it’s important to understand the difference between the full re-powering of a wind farm and a life extension.
A life extension
A wind farm life extension is the continuing of a wind farm in its current form (e.g. with the same type, size and layout of wind turbines) for a longer period of time. This is usually done by simply extending the wind farm’s planning permission.
The re-powering1 of a wind farm typically involves changing the layout, quantity, size and/or model of wind turbines used. This is usually done to increase the efficiency and amount of energy produced by the project.
For the purposes of this blog, we are discussing the actual negotiation of the lease agreement for either a wind farm that is being extended or repowered.
The Process of Renegotiating Your Wind Farm Extension
You may have been approached by your site developer to consider the extension when your lease is coming to an end. Or perhaps this is something you are thinking about.
If it’s the latter, then you’re in a good position. If you’re wondering why it’s because this gives you maximum time to plan for the negotiations to achieve the best possible deal. As the old adage goes: “fail to prepare, prepare to fail”.
Have you opted out of the Landlord and Tenant Act?
Before you do anything else, you’ll need to figure out whether you’ve opted out of the Landlord and Tenant Act. If you haven’t you’ll have fewer options when it comes to deciding what to do with the project. If you’re interested in learning more about this particular act, we’ve written a comprehensive guide that explains everything you need to know.
Do you know your site developer’s long-term plans for the wind farm?
Now, this one’s crucial. We are seeing an increasing trend of site operators replacing existing wind farms with fewer, larger turbines based on more powerful technology. This could mean that a wind farm that previously had six separate landowners involved may only require three landowners with fewer turbines on their land going forward.
Does your site operator plan to sell the wind farm in the foreseeable future?
Something that you’ll need to know before charging into renegotiations is what your site operator plans to do with the site.
- Do they see it as a long-term investment?
- Do they plan to sell it?
- Are they undecided?
The answer to this will determine your approach to project renegotiations. If you’re not sure where to start, you can easily figure out the answer to these questions by doing some basic research and having a conversation with your wind farm developer.
What are your future plans for the land?
At this point, we often find that landowners have an appetite for one of three things:
- Taking over the wind farm
- Entering a joint venture
- Moving to a new developer
Before you head to the negotiation table, you’ll want to figure out which of these three endeavours you’d like to follow in the coming years.
Do you wish to make changes due to inheritance tax planning?
You’ll always need to consider inheritance tax planning when thinking about the future of your wind farm. Would you like to move the wind farm lease into the name of another family member, a trust, or a limited company? If so, then you’ll need to speak with your tax accountant and/or solicitor to advise and help you choose the best option for the future.
Do you understand the full revenue potential of your wind farm?
It’s crucial that landowners understand the full revenue potential of the wind farm on their land.
As many of the landowners who are approaching the end of their wind farm leases were early pioneers of UK wind farm projects, they may feel as though they got a bad deal. This is because land rents have increased significantly over the years. Therefore, this is a great opportunity to build on the knowledge you’ve gained about the financial value of your wind farm to negotiate an increased land rent.
You may be able to shoot for the stars, but the rent you receive should at least be in line with landowners at other wind farms across the UK. To get this aspect of negotiations right, we highly recommend that landowners take the time to review the land rents currently being paid to landowners at other wind farms, especially at wind farms similar to their own.
If you need some assistance…
We regularly carry out such reviews for landowners using our SiteScan™ software. This checks a landowner’s rent against the rents being paid to hundreds of other landowners across the UK who have wind turbines on their land. The process gives landowners the crucial information they need to successfully renegotiate improved rental terms with their wind farm developer.
Compare the rents at hundreds of wind farms across the UK.
Access the best contractual terms written by the UK’s top solicitors to attain your ideal lease
100% of the landowners that we work with increase their rent negotiation offers
If their rents are in line with current values, it will allow them to feel more confident about the amounts being offered to them. In other words, it’s a win-win! To find out more, check out our case study with David, who is a farmer and wind farm landowner. We recently helped renegotiate improved rental terms for his wind farm extension.
Do you want to stay with your current wind farm developer?
If you’re coming to the end of your lease, you may also wish to consider whether you want to remain with your current wind farm developer. As these are long-term projects, it’s important for landowners to choose the right developer to partner with. We completely get it – relationships can change over time and it may be time to get someone new on board.
If you’d like to switch things up, we can obtain references for wind farm developers and use our top-tier reviewing system to assess the things that are most important for your project. This should give you all the information you’ll need to make an informed decision during the renegotiation process that works for you.
Although it’s tempting, we encourage landowners not to make money the only deciding factor when choosing a wind farm developer. Changing your wind farm developer is possible, and although it can be time-consuming, it’s often an option that’s overlooked by many landowners.
Great – so, what now?
Once you’ve considered your future plans for the wind farm and are fully aware of the rents other landowners are receiving, you should contact your wind farm developer to get the ball rolling with lease negotiations.
Once it’s been confirmed that the wind farm will be continued, you’ll need to get in touch with your wind farm developer to discuss their plans for continuing the wind farm on your land.
Top questions that you should ask your site operator
- What are their plans for the wind farm long term?
- How long would they like to extend the lease for?
- Landowners should carefully consider plans for their land and how the lease extension may affect this for the duration proposed.
- Does the wind farm developer plan on taking on more of your land?
- It’s vital to understand if there will be any significant changes to the areas of land your wind farm will cover in the new lease.
- Does the developer plan on changing the size, type or layout of turbines in the near future?
- This is important as this would be a wind farm repowering and may require new planning permission (see our wind farm repowering blog here).
- Can you obtain references from previous landowners who’ve partnered with your developer?
- Does your developer plan to sell the wind farm in the foreseeable future?
- If so, you should negotiate additional terms, including a clause that requires the developer to seek your permission before this is done and minimum requirements regarding the financial standing of any replacement developer.
- What are the site developer’s plans at the end of the lease?
- It’s important that the cost of decommissioning the site does not fall to you and that the land is re-restored to its original condition.
- Furthermore, you (or an independent expert) should have a final say in whether the site has been properly restored following decommissioning.
Why is this stage important?
This stage is crucial as it will determine the future income that you will receive and the future management and length of time that the wind farm will run for.
A key component of drafting the new lease is to ensure that the wording of the lease is very carefully written. As we have seen, changing just a few words can mean a substantial reduction in future rent payments.
For more information, see our video here, in which we discuss the significant impact that an error in a lease had on one landowner’s rental payments.
When negotiating rental payment terms, this is where the initial SiteScan™ research comes in and will prove invaluable for getting the best payment terms.
Identifying and presenting your market research findings early can make a big difference in the rental payments received over the life of the wind farm. This is also crucial when negotiating a mid-lease option.
In short, you’ll walk into the renegotiation process with a good knowledge of the market.
Things to remember when negotiating heads of terms
We are seeing a current trend, whereby developers are asking landowners to extend their leases for much longer time periods of up to 40 years.
As a result, landowners should be well-researched and prepared to negotiate with their wind farm developer.
Additionally, landowners should consider how the wind farm will be managed at the end of its life, as the decommissioning stage can cause landowners to incur significant costs if this isn’t clearly specified in the lease.
We review leases with our legal team on behalf of our clients to make sure that key issues are considered from a legal and commercial perspective.
Also, we regularly work with our client’s existing solicitors, to ensure that information is relayed accurately across the board and an excellent deal can be struck when the time comes.
When negotiating heads of terms, it’s important for landowners to remember that wind farm developers incur significant upfront costs that may take up to 15 (or more) years to recuperate from running the wind farm.
Therefore, we always advise landowners to be reasonable when negotiating rental terms, as this must work for both parties.
At this stage, it may be necessary for the wind farm developer to apply to extend the wind farm’s planning permission and this will normally be carried out after the new lease has been signed.
In case you weren’t aware, your chances of obtaining planning permission will depend on whether you’re planning to repower your wind farm or are building a new project altogether. So, it’s always worth running through your options and settling on a plan of action before diving in.
The number of onshore wind farms being built has reduced over the last few years as developers have favoured other renewable energy projects due to stricter planning regulations.
Only 1.6% of UK councils have considered and have been able to identify a suitable area for wind energy development in their latest Neighbourhood Plan and 20.8% of councils have identified suitable areas for wind energy in their Local Plan. These are not very encouraging numbers for the near future of new wind projects.
This means that a wind farm that is simply being extended with no changes to the turbine size, type or layout should obtain planning permission with few issues. However, for wind farms where developers are planning a full re-powering, there will be more challenges when it comes to obtaining new planning permission, such as convincing planners to accept the additional visual impact of taller turbines.
A few parting words
Regardless of whether you’re planning to repower your wind farm or are endeavouring to extend the life of an existing project, this checklist of steps should help you achieve an excellent deal.
By working closely with your site operator and creating a detailed action plan for the future of your land, you can put your best foot forward at the negotiation table.
The result? You’ll achieve a favourable outcome for all parties involved and should be able to exploit the full revenue potential of your wind farm. And really, what could be better than that? From a planning permission perspective, repowering includes extending the life of existing turbines, replacing and/or repositioning of the turbines.
1 From a planning permission perspective, repowering includes extending the life of existing turbines, replacing and/or repositioning of the turbines