Leasing Land for a Solar Farm: Creating a Watertight Contract
 Topic: landowner contracts |  Read Time: 11 mins |
 Landowner type:Independent landowners | Institutional landowners |  Energy: Solar |
19th April 2024Not sure what to consider before leasing land for a solar farm? In this guide, I’ll review everything you need to know to create a watertight contract for your solar project.
Signing any legal contract is a big commitment, and, when you’re signing a lease that can run for up to 40 years, you certainly don’t want to go in with your eyes closed.
But what exactly should you look for when leasing land for a solar farm? Well, I’m here to tell you exactly that.
Over the years, I’ve seen hundreds of lease agreements that have good (and inherently bad) clauses. So, I decided to share my knowledge and give you everything you need to know before signing on the dotted line.
From option agreements and mid-lease options to income considerations and monitoring plans, this guide has it all.
Steps to Take Before Leasing Land for a Solar Farm
Get a solid option agreement
One of the first things you should do is ask your developer for previous examples of their work and how financially viable these sites are.
If you’re happy to proceed, then the developer will bookmark the agreed plot of land as suitable for solar development, moving the project into the option agreement phase.
Option agreements usually run for around five years, but they can stretch further than this if planning permission or Grid connection is particularly complicated or challenging to get.
The option agreement ‘reserves’ your land for a solar project and allows your developer to get going with:
- Conducting feasibility studies
- Getting planning permission
- Securing Grid connection
- Financing the project
- Sourcing the necessary supplies to get the project moving
What about exclusivity and guarantees?
Most solar farm agreements won’t require you to sign over every acre of your land. However, you do want a clear idea of what land your developer needs outlined in the initial option agreement, so there won’t be any issues down the line.
Be aware that your land will be reserved exclusively for the developer during the option period. So, you won’t be able to alter your land significantly during this time.
It’s important to understand that an option agreement doesn’t necessarily mean a project will come to fruition. It’s just the first step towards the project.
You’ll get a fixed fee for reserving your land, but you may need to seek out another developer if the original option agreement falls through.
Before your option agreement ends, your developer will usually approach you with the final lease.
The terms in your option agreement will largely carry over into the final lease, with minimal changes possible. So it’s important to make sure that any key terms are ironed out at this stage of the project.
Otherwise, you could face issues with the project further down the line – and not be able to do much about them. Which is why these next steps are so crucial.
Consider income and payment arrangements
For most landowners, income considerations constitute a significant part of any project (and it’s often a driving force). So, it’s essential to carefully consider the rate you’re offered and the payment arrangement you’re interested in.
Fixed arrangements are incredibly popular with solar projects as they use the acreage of your land multiplied by an average rate.
However, you should discuss a royalty-based payment arrangement if you want to boost your earnings and take on slightly more risk. If this interests you, hybrid arrangements or turnover-based payments will be a better option.
Whatever you choose, you’ll want to ensure you’ve carefully weighed up the risks and rewards of each option before signing.
Understand Power Purchase Agreements and how they may impact you
Your developer may also discuss the possibility of a Power Purchase Agreement (PPA).
Developers are usually quite secretive about these as they’re often considered commercially confidential.
However, developers often keep their PPAs quiet because many landowners use a fixed payment arrangement for the project. And if the landowner has no share in the output of the site (and the income that comes with it), there’s technically no reason to share this information freely.
If you’ve agreed to a royalty-based payment, you’ll have insight into the PPAs and can better understand the payments owed to you.
Find out the projected timescales
I understand that landowners need to be able to carry out their day-to-day activities as far as possible. After all, the solar farm payments are unlikely to be your sole source of income, especially if you’re a farmer.
But while a project is being built, a lot of land will simply be out of commission. This will be down to construction work, setting up relevant maintenance tech and everything in between.
It’s essential to check with your developer on projected timescales to help you manage your expectations from the option phase to the maintenance and monitoring stages.
Know your rights
Depending on your job as a landowner, you’ll also want to double-check your rights for:
- Crop cultivation
- Rearing livestock
- Generally existing on your property during the lease’s life
Just be aware that there may be some restrictions on your land as solar projects take up a lot of space. It won’t be a dealbreaker, but you’ll want to prepare to have this land bookmarked for up to 40 years.
Do plenty of market research
You should carry out serious market research if you’re leasing land for a solar farm.
Ideal land for a solar farm will have plenty of sunlight, flat surfaces and enough space to house hundreds or thousands of panels. If you have all of these things going for your site, you’ll be in a great position to negotiate and get what your land is worth. This way, you won’t be then tempted to agree to bad terms.
Developers try to make as large a profit as they can. So, they’ll often flick through their current portfolio and may land on a rate that they think is reasonable. Keep in mind that many developers aren’t up-to-date on the going rates across the country, so it’s always important to counter with accurate figures.
Need help?
If you want to measure your land’s value, invest in a Lumify SiteStart. We’ll carry out a comprehensive scan of your site and compare your potential royalty rates with sites across the country. Based on our findings, we’ll either negotiate contract terms on your behalf or help you get the most value from your lease agreement. So you’ll be equipped to make the best possible decisions about your site before you’re bound to a formal lease agreement.
Consider adding a mid-lease option
A mid-lease option is a clause in a contract that allows landowners to renegotiate terms part-way through a lease. Despite its name, it doesn’t always happen at the mid-point of a lease and can fall at any time after the contract has started.
It gives you a chance to look at:
- Current market rates
- Expected rental income
- Cost of living
If any of the things above have changed over time, the mid-lease option allows you to renegotiate. After all, a lot can change over 40 years, and you’ll want to ensure you’re getting fairly compensated.
And if you’re consistently doing market research on other sites around the country, you’ll be in a great place to boost your rental payments.
Talk to your neighbours
If your site is suitable for solar development, you may already have projects near your land – and this is beneficial because:
- You’ll know that planning permission may be easier to get, (as it’s already been approved for a project close by)
- You’ll feel more certain be surer about a project reaching completion, giving you the confidence to get started
- There may already be a Grid connection point nearby
Your neighbours will only be allowed to share some high-level information about leasing their land for a solar farm, as it’s confidential.
But if you can get an idea of how much the day-to-day process affects them daily, you’ll be in a better position to make a decision.
Ask your developer about planning permission and grid connection
There’s a major backlog for securing grid connections for new projects. In some cases, this can be as long as 10 years, with most new projects getting green-lit for 2030 and beyond.
So most developers will go ahead without Grid connection in place in the hope that they’ll get it eventually. The same goes for planning permission, which can take a long time to secure for most large-scale projects.
If you’re worried about how long these processes take, check in with your developer. Any developer worth their salt should be willing to check on these timelines for you and offer peace of mind.
Determine who will take Grid connection ownership at the end of the lease
Most site operators and developers will want to maintain their Grid connection as it’s a precious asset. But as the technical owner of the land, you may be able to take this back for yourself if you want to.
If you can write Grid connection ownership into your lease during initial discussions, that’s ideal.
Assess the impact on your land
As your land is your livelihood, you should consider a project’s impact on your land.
Solar panels take up a lot of space, and your site is likely to take a slight beating from construction vehicles, maintenance and machinery.
Which leads us onto my next point – making sure you get a clause baked into your lease that includes plans to return your land to its original state.
Ask about decommissioning plans
You want to be aware of exit strategies if you’re leasing your land for a solar farm.
Closing down a project is expensive, and you must check on your developer’s plans for decommissioning and GET THESE IN WRITING before signing a lease. Most developers will set aside money for decommissioning (as it’s often par for the course), but these plans should be in your contract from day one.
You want to add this to your lease because it’s technically the landowner’s responsibility to return the land to its original state. So make sure your developer lays out decommissioning plans and leaves no onus on you as the landowner to set things straight later.
Adding this to your lease will help you avoid nasty disputes and give you peace of mind as you sign your property away for several years.
Opt out of the Landlord and Tenant Act
Before signing your lease, it’s essential to opt OUT of sections 24 to 28 of the Landlord and Tenant Act 1954 otherwise you’ll have minimal power over the tenancy when the lease ends.
By opting out, you can determine exactly what happens to your land once the lease ends.
Otherwise, it’ll automatically renew, and your site operator won’t have to vacate.
Consult with experts
Before signing any legal document you should carefully comb through the lease agreement and raise any terms that are unclear.
You could take this one step further and get help from a team of experts. While I understand that this advice can be costly, taking on a solar farm lease isn’t something you want to do lightly.
Solicitors, land agents, and accountants should be your first port of call. But solicitors are especially useful, as they’ll help you pick out any unclear terms in your lease and explain them, too. Solicitors may even request or suggest additions that may improve the overall terms of the lease agreement.
Land agents will help you apply for necessary permissions, agree terms with site operators, and help set up timetables for decommissioning. They can also help you agree timelines for extending the project, if necessary.
Accountants are essential if you want to determine the financial viability of a project. They can review any existing financial data from the developer.
All in all, leasing land for a solar farm is far easier with a few helping hands in tow.
Don’t rush the process, and leave plenty of time
I advise landowners to get ahead of the game when planning leases, as it’s less likely to lead to panicked decisions.
Realistically, the more time you have to discuss your lease terms, the better the terms will be. If you rush to meet a deadline, you may agree to terms that aren’t financially sound for you. (at least for you).
Being prepared and putting your best foot forward here is critical, and that’s because you’ll be locked into a lease for around 35 to 40 years – that’s a long time if you’re not entirely happy with the terms.
If you don’t take the time to get your ducks in a row before getting to the negotiating table, it may leave you feeling stressed and unprepared. This is not an ideal place to be.
What Should I Do After the Project Starts?
Once the site is up and running, the developer will manage it directly or hand it over to a site operator. The latter is more likely for large-scale developers with many projects to handle.
For starters, you’ll want to know who you’ll deal with daily. After all, a great relationship is critical to a successful project.
It’s also important to determine your responsibilities as a landowner and how you can help keep the project running smoothly.
For example, can you help maintain the grounds or report any broken equipment to the site operator?
Although they’re small things, keeping the project fully functioning is in your best interest. The longer a site is down for maintenance, the less output it will create. Over time, that could significantly impact your bottom line.
Questions To Ask Your Developer Before Signing a Solar Lease (Checklist)
- What are you planning to pay me per acre of land you’re leasing?
- Can you show me other solar farm projects you’ve done and how much they’ve made over time?
- What is the effect on non-leased land?
- What is the term of the lease/how long will the lease last?
- Who will maintain the site once it’s operational?
- Will the solar farm development interfere with our farming/daily operations?
- What makes you a great developer to work with on a solar project? Do you have any testimonials from previous clients?
- How will you finance the solar system on my land?
- Who should I contact if I have questions about the lease? Who should I contact if I have questions about the installation?
- Is a Solar PPA a good option for this project?
- Will I be dealing directly with the developer, or will I be working with a middleman/broker?
- How long will it take to get this project up and running?
- What are the provisions for removing the site at the end of its life?
Final Thoughts
I understand that signing a lease for 40 years (or more) may feel daunting. But with forward planning, help from experts and secure knowledge about current market rates, you can’t go wrong.
Remember to leave plenty of time for the negotiation phase, as you won’t want to rush your decision. At the end of the day, it’s always a great idea to prepare and arm yourself with cold, hard facts.
If you’d like extra help at the pre-negotiation or negotiation stage of your lease, contact our team. We can help you with everything from uncovering valuable information about current market rates to running through the contract process.
