There is a “solar boom” going on in the U.S., and especially in Texas. The past several years have seen rapid technological advances, substantial cost reductions and tax credits for solar energy development. Many Texas landowners wouldn’t mind getting in on the boom, but not at the expense of their own best interests.
When a solar energy company comes to you to lease out your land, they generally present you with a lease that was developed by their own lawyers. The leases are complex and detailed and may be 30 pages or more in length. How do you know if your interests are being protected?
You don’t. You need to bring any renewable energy lease to your own attorney to be sure. However, there are a few major issues you can look out for as you read and examine the proposed lease:
Purpose clause: Make sure you understand and agree with the permitted uses laid out in the purpose clause. These clauses differ from developer to developer, but a typical one would specify that the lease is for “solar energy purposes,” which might mean “collecting, converting, transmitting and distributing electrical energy converted from solar energy.” The more general the purpose clause, the more favorable it generally is to the developer. A more specific statement of purpose could benefit you.
Easement rights: An easement is basically a legal right to use someone else’s land. Solar leases often grant easements for 1) ingress and egress from the project, 2) road construction and 3) the construction of transmission facilities and any other necessary facilities. You should make sure these easements do not survive the expiration or termination of your lease. You should attempt to ensure the easement is exclusive to the developer and that no additional rights are granted other than those in the lease.
The lease term: This will typically include both a “development term” and an “operations term.” The development term is everything done in order to bring the development to fruition, while the operations term is the period during which the completed solar farm is operational. Sometimes, there is a separate “construction term.” Your lease should specify benchmarks that are required during each term in order to avoid terminating the lease. Expect the development and construction to last between four and five years and for the operations term to last 30-35 years.
Compensation: For solar leases, the landowner’s compensation is typically royalties that go up with the price of electricity. A typical scheme is for the landowner to receive 3.5% or 4.5% of gross revenues with growth over time. Make sure you understand and agree with what constitutes the “gross revenues.” For example, it should not only include the revenue from electricity generated from the project but also revenues from the sale of renewable energy credits and other sources. There should typically also be a minimum “rent” payment that is paid if the project does not reach an established production floor.
Reserved uses: Make sure your lease limits the solar developer’s rights to use your property to the operation of a solar farm but allows you to carry on using the surrounding land. For example, you may wish to continue to use your land for agriculture, hunting or even oil and gas exploration. However, solar farms have substantial infrastructure footprints, so you may not be able to use the occupied area. Make sure you understand your rights to the unoccupied area.
These are just some of the ways you need to protect your rights as a landowner when negotiating a solar farm lease. Before you sign any agreement, you should have your own lawyer scrutinize the document for issues like these. Be sure to hire an attorney who has experience reviewing and drafting solar energy leases.