Drawing Up a Wind Farm Lease Agreement: Ultimate Checklist
|Topic: New wind farm projects||Read Time: 10 mins|
| Landowner type:
Independent landowners | Institutional landowners
|Energy: Onshore wind|
Are you in the process of agreeing to a wind farm lease agreement and before getting turbines on your land? Join us as we uncover everything you need to know about a wind turbine lease agreement (and what to avoid!).
We completely understand that signing a lease that runs for over 25 years can be a big commitment. And for that reason, you probably don’t want to sign on the dotted line without considering every last clause. But what exactly should you be looking for when signing a wind farm lease agreement?
Well, over the years, we’ve learned exactly what you should consider before signing on with a developer. From option agreements and income considerations to management responsibilities, we’ll cover it all. We’ve even got a handy checklist for you to work through as you’re in the midst of the process. Now let’s uncover everything you need to know about signing a wind farm lease agreement.
Preparation Before signing a Lease Agreement
Think about option agreements
Although starting a new wind farm can be an exciting prospect, getting planning permission is no mean feat . And that’s why lease option agreements exist. Option agreements are something you need to think about before signing a full-fledged wind farm lease agreement. So, it’s technically Step 0!
If you’ve not signed an option agreement, then you’ll want to read on as a lot of this will form the crux of your final lease agreement. If you’ve already signed one, you probably won’t be able to change many terms of your agreement. So, if you’re planning far ahead in your wind farm development journey – stick with us.
For those completely new to wind farms, option agreements are designed to reserve a plot of land for wind development. We go into these agreements in plenty of detail in our dedicated rundown of option agreements. But one thing we will mention here is that you’ll want to make sure all terms are clearly outlined as a landowner.
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
We talk about this a lot with wind farm extensions in particular. But you don’t want to be rushing when it comes to signing contracts or agreeing on terms for long-term projects.
The average wind farm lease runs for 25 years and up, with modern leases running for even longer than that. So, rushing and faltering at the final hurdle could set you up for a bit of a headache down the road. Leaving plenty of time for discussion lets both parties voice concerns and create a mutually beneficial wind farm lease agreement. And if there are any disagreements, you’ll have time to try and work through these without one side needing to concede. In short, get time on your side and plan things out at least several months in advance.
Do market research
Speaking of leaving plenty of time to get things sorted, this extra time lets you do lots of market research. It’s worth gathering information about similar sites across the UK to see what you should expect on the income front.
Getting a Lumify SiteStart™ report is a stellar place to start if you’re looking to figure out the potential value of your site. We completely understand that it’s tricky to know what a fair rate is when negotiating contract terms. But with solid facts and figures to hand, you’ll be in a much stronger negotiating position with developers who approach you.
We’ll compare everything from your site location, payment rates, and energy type with other sites across the country. And at the end? You’ll get a no-jargon report to carry forward into negotiations.
Along with a SiteStart™, you can also take a look at similar wind farms to get a decent idea of what to expect. This is also the time to research any developers who may have approached you to see whether they align with your goals. You can start this process relatively early, but it’s best to do it before signing an option agreement.
Before you dive into a wind farm lease agreement, it’s always worth approaching experts (other than us, of course!). Solicitors, land agents, and financial experts are all worthwhile sounding boards for new projects.
Land agents will have a great overview of different sites and what they’re currently pulling in. This is particularly useful if a developer can only present their portfolio to convince you to sign an option agreement. It’s also worth contacting solicitors to examine any fine print and explain or rework terms that might be overly complex. After all, you don’t want to sign anything you don’t 100% understand.
Finally, experts like accountants are sometimes underused but 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.
Now, 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 get overwhelmed when drawing up a wind farm lease agreement. Instead, you just need to know what you (as a landowner) need to consider before signing on the dotted line. From mid-lease options to what will happen during the management phase of the wind farm, it should all be worked on. Now, let’s dig a little deeper.
1: Think about mid-lease options
It’s worth mentioning that a lot of landowners can get short-changed during their lease because of inflationary factors. Not only that, but often the value of their site increases or simply doesn’t align with current market rates. That’s not necessarily a site operator being malicious and withholding rent. But if you aren’t able to discuss potential changes to your rental income during the life of a lease – what can you do?
To help avoid this problem cropping up, we suggest that landowners work a mid-lease option into their agreement. Across an average lease period, market rates, expected rental income, and even the cost of living are bound to fluctuate. By getting a mid-lease option into your wind farm lease agreement, you can reassess terms during your lease’s life.
The name might suggest in the middle – and that’s a fair assumption. But you can choose to discuss changes to your rental income as a landowner at any pre-agreed point. This will give you a set date to work towards if you need to gather information on similar sites across the UK. With the right data in hand, you’ll be able to up your rental rates without much pushback.
2: Income considerations
As we just mentioned, you’ll want to make sure you’ve carefully weighed up your income before signing. 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 looking for reliable but not necessarily stellar income, a fixed payment arrangement may be the right call. If you’d prefer to be more involved with the output from the site, a hybrid arrangement might be better. This typically offers more of a share of the profit and success of the site than fixed arrangements. But it also comes 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 you have the right land required for a wind farm, you might need to consider how turbines will affect it. There’s always the risk of damage to crops with the building of access roads and the actual turbine construction period. And realistically, you’ll want to get your land back in the same condition it was found at the end of a project’s life.
It’s a good idea to get language into your wind farm lease agreement that spells this out. Not only should the developer agree to restore your property to an excellent condition, but any damage should be clearly measurable. By this, we mean that there should be a set way to assess and determine any damage that won’t result in major 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, that is.
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 a trusty accountant or getting a full picture of your site’s performance with the Lumify SiteView360. But it’s also worth investing in a deep dive to uncover any missed payments once things are up and running.
Aside from tracking payments during your wind farm lease, you’ll want to have responsibilities clearly outlined in writing. This includes what maintenance the site requires during its lifetime and who’s responsible for what in terms 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’re planning to decommission a project (or it’s reached the end of its usable 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 if things go awry during the process for any reason. After all, a wind farm project is a multi-million-pound endeavour in many cases. So, landowners should understand their rights when it comes to getting their land back.
At the beginning of a project, a developer will have obtained appropriate financing for the project. But IF anything goes wrong, having a clause in your wind farm lease agreement about creditors can be key.
A legal statement that mentions you’re not responsible for paying off creditors is crucial to avoiding unforeseen financial chaos. That’s if a developer abandons the project, of course. Either way, you must have enough money set aside for the decommissioning process. Although it’s usually covered by developers, it’s technically a landowner’s legal responsibility to remove the turbines eventually.
Other Things You May Want to Think About with a Wind Farm Lease Agreement
There are lots of important things we’ve mentioned about signing a wind farm lease agreement. But these are a few final considerations you might want to bear in mind before signing anything.
Making use of the energy
If all energy isn’t being sold to the Grid, it may be worth making use of the energy for another project. This can be assigned to off-takers, but some landowners have associated projects that use wind farms as an energy funnel. For example, Dewlay Cheesemakers use their onsite turbines to cover the production required at their dairy. And that’s in a very energy-intensive industry, too!
Grid connection ownership
Grid connection ownership can be a point of contention if a project goes south. A developer will usually seek Grid connection when they identify your land as suitable for wind development. But 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 seriously valuable commodity. But as the owner of the land in question, 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.
These sections give 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 when you don’t want to. It also makes removing site operators more difficult and takes you slightly out of the driver’s seat. Just something to carefully consider before negotiations.
Below is a summary of the things to think about before signing a lease agreement:
As you can see, there are quite a few things that you’ll want to think about before signing a new wind farm lease agreement. But with expert help, plenty of market research, and an exit strategy, you can’t go far wrong. Although you might be confident, it’s always worth checking in with experts to keep your lease watertight. That way, you can walk into contract negotiations knowing that you’re starting on the right foot.
If you need any further guidance on signing a wind farm lease agreement, just get in touch with the team. We’ll be happy to talk you through your options and reveal the true value of your site.