7 Wind Turbine Lease Considerations for Landowners
|Topic: wind farm extension||Read Time: 13 mins|
| Landowner type:|
Independent landowners | Institutional landowners
|Energy: Onshore wind|
Are you looking to host (or extend) a renewable energy project on your land? If so, there are several wind turbine lease considerations for landowners that you should think about. From payment terms and construction considerations to decommissioning and potential land impact, you’ll want to keep these things in mind before signing on the dotted line.
As most wind farm leases run for up to 30 years before being renegotiated, starting off on the right foot is crucial. To help you navigate the process, we’ve rounded up the most important wind turbine lease considerations for landowners that you need to think about.
This list will let you approach lease agreements with confidence. Plus, we’ve even thrown in a few top tips for success that’ll help you secure the best terms possible.
Now let’s dive in.
Top 7 Wind Turbine Lease Considerations For Landowners
The payment arrangements for wind farm leases vary and will be decided when negotiating lease terms.
Some landowners will want the reliability of fixed-term rent that’s paid regardless of how well a project performs. This is usually paid annually and typically increases with inflation to prevent the erosion of earnings. It’s relatively stable but may not offer the best returns.
Alternatively, you might want to think about turnover rent, generation rent or hybrid rent, if you want to capitalise on successful projects.
Each of these options exposes the landowner to more volatility. But you’re typically guaranteed a minimum rent payment plus a bonus percentage based on the project’s performance.
Before signing anything, you’ll want to make sure that your payment terms are clearly outlined as a change in a few words in your lease could be the difference of thousands of pounds. You’ll also want to make sure that your contract accounts for construction costs. It’s also important to get a good idea of average market rents before accepting any offer from a developer.
Although it’s not pleasant to think about, developers won’t want to spend more for your land than they need to. So, they may assume you aren’t aware of current market rates and offer you rent that’s below that of similar sites around the country.
Lumify SiteScan™ and SiteStart™ will provide all the market data you’ll need to make a comfortable decision. This way, you can walk out of the negotiating room confident that you’re receiving a fair and acceptable rate for your land.
Length of term
Another one of the most important wind turbine considerations for landowners is the length of term. And as you might expect, there are a few things you need to think about before diving in.
Before signing an official wind farm lease, landowners and developers may have signed option agreements to essentially “reserve” the land in question. This essentially grants a developer exclusive permission to hold the land whilst seeking planning permission. This would give them permission to use the land to capture the wind resources on the property until a certain date.
This doesn’t mean the wind farm will ever actually come to fruition. But the developer will pay to reserve the land for a set period of time (this payment is often per acre).
At this stage, it may feel like you’re far away from the wind farm being built. It will seem as though the land is simply on hold. You may be told not to worry about the terms too much as they will be negotiated later. But what many landowners don’t realise is the most important parts of the lease will already be included in the option agreement. And there will be little scope to change them later on.
Therefore, we advise landowners to treat their option agreements as a final negotiation.
It is also important to make sure that your land is not tied up without a guarantee. It’s crucial that you will receive a given proportion of the income generated from the wider development. You may also want to get an estimated forecast of how much the project could earn. So there should be clear expectations from the beginning to avoid disputes later.
Option agreements usually last around 5 years, but they can be extended if planning permission hasn’t been granted yet.
Before agreeing to offer your land for lease, it’s important to know that a small area of your land will essentially be limited for several years.
Duration of the contract
Planning permission for wind farm projects typically runs for 25 years, but turbines have a usable life that exceeds this. For this reason, most wind farm leases have previously run for 20-25 years with the option to renegotiate or repower down the line.
More recently, we have seen an increase in the lease terms being offered by site developers. This is to secure for as long as possible and for developers to be able to recoup their initial investment. This is all well and good, but landowners will also want to ensure that they receive a fair price for their land. As recovering the initial costs of building a wind farm can take anywhere from 10 to 15 years, developers may try to save costs in the initial stages.
For this reason, we always encourage landowners to carefully check the terms of their leases. You should ensure that you’re happy with the payment arrangement outlined in the lease.
But you should also receive compensation for the period of development. And not just once it’s up and running!
Before signing, you should also consider adding an option to review the contract payment terms at a certain point (mid-lease option). Don’t worry, we’ll explain this in more detail later.
To avoid having to automatically keep the existing tenant on your land, you should opt out of the Landlord and Tenant Act 1954. This should be explicit in your lease, as remaining silent automatically provides the business tenant with security of tenure.
Trust us when we say that opting out will give you the greatest control over your land when the initial lease lapses.
I’m being offered a longer term – should I sign it?
Whether or not you sign a longer contract depends entirely on your needs and future plans. It would be understandable to want to secure additional income for a longer period of time. But if you decide to sign a longer lease, it’s essential that you have your lease thoroughly checked by a specialist in this area.
Over time, we have seen the smallest of errors in a lease term have a significant impact on future income. In order to help you get the best terms possible, we’re looking to bring our IdealLease(™) tool into the limelight.
As part of our Lumigraph technology, this innovative tool reviews hundreds of existing wind farm leases and essentially pulls out the best bits! It doesn’t matter whether you’re a sole trader, a large company, or a limited company. We take the best terms written by the UK’s top property lawyers and apply them to your lease.
This way, you’ll always get the very best written terms that can then be checked over by your solicitor for peace of mind. With a well-worded lease agreement, you should have no issues getting your land rent and any associated income.
If you take a longer term, you may get more overall income from the site as it will be profitable after a longer period.
Dispute resolution clause
It goes without saying that no one wants a dispute. To avoid disagreements between site operators and landowners, an explicit dispute resolution clause is key.
In most dispute cases, staying silent would require the landlord and tenant to go to court for a resolution. Not only is this undeniably expensive and drawn out (+ often unnecessary!), but a resolution clause can help preserve relationships.
We suggest that you try to avoid going through a court or arbitration process if you can avoid it. An expert determination clause works well as it is more cost-effective than other alternatives. The resolution process is also simpler if something goes wrong. And as they’re less formal, they’re much better for keeping tenant/landowner relationships solid.
One of the main construction considerations for any wind project relates to access roads. It’s true that this aspect of the project should be handled by developers. But landowners should also be aware that general maintenance and the construction of access roads can affect their day-to-day operations.
It’s worth noting that this impact could be considerable depending on the construction period. So, landowners should be certain to review these details within the lease agreement and make sure that all of the details are clearly specified.
By discussing appropriate access roads with developers, you can keep all other operations on your land going. And that’s without holding up the construction process or affecting your day-to-day operations! Many landowners receive payment for access roads in addition to their minimum and generation rents.
In short, everybody wins.
On the whole, the impact of wind turbines on farmland is relatively minimal. So, it’s not one of the wind turbine lease considerations for landowners that is a dealbreaker. Although large, commercial turbines will understandably take up a fair deal of space, they rarely disrupt a landowner’s ability to continue their regular work.
The exact spacing you’ll need to consider depends on the size of the wind farm in question, but the rotor diameters of each turbine are usually around 300 feet.
It’s also important to consider that wind turbines need to be placed at a distance that’s at least 10 times the current height of an obstacle (like buildings!). The general standard in the UK is to have turbines approximately 5 rotor diameters apart to prevent them from affecting each other with turbulence.
It’s down to the individual landowner to decide whether a wind energy agreement will affect their crop and livestock production. Although farming will still be able to take place on the land between the turbines, it’s worth keeping in mind.
If there is any damage/disruption to crops or livestock, there are clauses usually put into the lease for reimbursement. If you’re even remotely concerned, it’s a great idea to consult with a team of experts when crafting your lease. This way, you can be sure that the proposed project or extension won’t impact your ability to use your land.
The overall goal is to make the wind farm on your land provide a viable stream of income without damaging or impacting your land’s ability to generate any usual source of income.
If you’re trying to protect your wind farm payments in line with the market and inflation, it’s a good idea to think about a mid-lease option. This is a clause that allows both tenant and landlord to renegotiate the rent paid for the land in question. This will be agreed upon before the lease is signed and will align rent payments with current market rent to reduce uncertainty.
Despite being called a mid-lease option, it doesn’t necessarily need to occur in the middle of a lease! Instead, it can take place at any agreed period throughout the lease’s duration.
If you want to ensure you’re getting the best rates possible, it’s worth using our SiteScan™ tool to review how much you’re being paid compared to similar sites in the country. This will give you all the information you’ll need to conduct a thorough rent review.
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
Although you can also negotiate inflationary considerations into your lease, a mid-lease option allows you to align with market royalty rents more closely at the time of discussion. As realistically, there’s a high chance that the marketplace will have changed over time. So, it’s a surefire way to increase your wind farm payments without much additional effort!
In case you were wondering, you can also use the mid-lease option to discuss a wind farm extension before the current lease lapses.
Tower removals and decommissioning
At some point, every wind farm will eventually be decommissioned when it’s no longer economically viable. Or the turbines become completely obsolete! There’s also a chance that the turbine towers no longer generate a viable income for a landowner or genuinely interfere with their day-to-day operations.
If this happens, it’s important that your lease clearly outlines what will happen during this decommissioning period.
To make the process seamless, you should consider:
- Who is responsible for removing tower structures – (developer)
- Who will pay the cost of decommissioning the site – (developer)
- How everything will be removed and returned to “normal” – (developer)
- Having a clause that insists on an expert reviewing the land to ensure that it has been restored in the correct way with no contamination
- Having a clause that insists that the developer put aside a decommissioning fund in case of developer insolvency and that the landowner has access to the monies
This is important because, legally, it is the landowner’s responsibility. So landowners must have a watertight contract to ensure developers take responsibility for certain aspects of decommissioning. As removing turbines can be a drawn-out and expensive process, developers and landowners must be on the same page here.
Putting contracts out to tender (for councils)
Tendering is a formal process that allows “businesses to bid for contracts from public or private sector organisations.”
Councils will always try to optimise any contracts given out. In the UK, this often comes from onshore wind farms, and councils have excellent buying power that allows them to procure the best possible contracts. They will usually prefer to put all projects out to tender as they want to seek the best value. After all, they are more likely to get a competitive deal if developers have to compete for bids.
But this is not legally required for smaller or existing projects where there won’t be a huge new footprint. If a project is being renewed, the main goal is for this to be done in a commercially viable and flexible way that works for both parties.
IF contracts are put out to tender, councils should take the following steps:
- Research the market to find developers who are already successfully developing similar projects. There should be a focus on size, as developers will need to demonstrate that they can handle the heat!
- Shortlist and contact approximately 3 developers to see if they’re interested in partnering on the project.
- Put out a formal tender notice. It’s worth noting that most developers will not see the notice in time and not many responses will come in. For this reason, the project often goes to the developers who were initially contacted.
- From the applications, the council should shortlist the responses. They should look for developers that are able to provide transparent financial forecasts (including profitability and income potential). They should also be able to provide a standardised income.
- To get a decent idea of this, councils should ask developers for quotes. They don’t want to go with the cheapest developer (necessarily), as they want to choose a developer that can run the project successfully.
Before settling on a developer, councils should think about:
- The price the developer will pay the council: the more income shared, the better!
- Who can construct the project quickly
- When can a developer construct a project?
- How favourable the lease terms will be for the council – developers that are more willing to negotiate will be viewed well.
- Whether a developer has a clean bill in terms of disputes. They should have a good track record and have no disputes with other councils.
We’ve briefly touched on this further up in the post. But we wanted to reiterate that payments need to stay in line with inflation. This will help to prevent income erosion over the period of your lease and help you achieve the best deal possible.
Grid connection takeover
If landowners eventually want to take over the grid connection of a project, it’s a great idea to bake this into a lease. If a lease is worded well, the terms can allow for the transfer of all agreements associated with the project. Trust us; this will be a huge weight off your shoulders in the future.
Tips For Negotiating the Best Contract Possible
Although we’ve created an in-depth list of power tools that you can use during the renegotiation process, first-timers may need a bit of extra help. So, stick with us as we run through a few tips that will help you negotiate the best contract possible.
Think about how you’ll handle issues that arise
This might sound like an obvious comment, but many negotiations stall because parties can’t decide how to resolve disputes. By coming to the table with an action plan and a way to resolve any disputes that arise during the process, you’ll be in a good position to reach a favourable outcome.
And quickly, at that.
Use your knowledge of the current market to get ahead
Most of the time, all parties negotiating a contract will want to secure the best possible deal for them. This doesn’t mean developers will attempt to short-change you. But walking into the negotiation process armed with information about current market rent will always be beneficial.
Before starting negotiations, you’ll want to research and identify a list of the sites in the UK that use the same technology as your site will have. This way, you can come to the table with solid facts that can’t be easily disputed. It’s also important that you try and work an inflationary factor into rental agreements, as this is bound to increase during the life of an average wind farm.
Come to the table with a plan
It’s important to have a step-by-step plan in place when it comes to negotiating any contract. You can draw this up with a team of experts for peace of mind and make a note of factors that are important to you. Whether this is turbine size, payment terms, or the use of your land and the effect of access roads, keep this at the forefront of your mind.
We often get asked questions about how feasible setting up a wind farm would be. Here, we’ve covered a few of our most frequently asked questions that should help you consider how suitable your site is.
What are the main considerations in selecting a site for a wind farm?
The key things a piece of land needs are adequate wind speeds, suitable terrain, and accessibility for construction.
Is my land suitable for a wind turbine?
The first thing you’d need to place a wind turbine on your land would be appropriate planning permission. Past that point, you’d need to meet the set requirements for running a wind farm (as we’ve just noted above).
How much land do you need for a wind turbine in the UK?
The amount of land required for the average wind turbine is somewhere between 25 and 40 acres (depending on size).
Can you hear a wind turbine 1 mile away?
Wind turbines generally operate while producing a sound that’s around 30 decibels. Even in quiet rural areas, this wouldn’t be heard a mile away.
Although signing a new wind farm lease can feel overwhelming. The most important things to consider are payment arrangements and the length of the term. But you’ll also want to think carefully about the impact that a full-scale wind farm would have on your land.
Whether that’s impacting access, your ability to grow crops, or farm livestock, the potential loss of income is worth weighing up with the benefits of wind turbines. With a sprinkling of expert advice and accurate data about your site’s potential, you can approach contract negotiations without any worries.
If you need a hand getting an ideal outcome for your wind farm lease, just get in touch. The Lumify Energy team will be more than happy to talk through your concerns and offer actionable steps for success.