If you have been approached to lease part of your land for a solar array, you may have many questions. Chances are you have no background in solar energy. You don’t know what would constitute a good deal. You don’t know what contract terms are necessary to protect you.
The process may seem relatively straightforward, but there is a lot that could go wrong. What if you need to use part of your land that is dedicated to the solar array? What if the energy company goes out of business? Will they still remove the solar array from your land? What if there is a dispute?
The answers to these questions are all important, and you should not get legal advice from a blog post. Don’t feel pressure to sign a lease as it is proposed to you. Instead, get advice from an attorney who has experience representing landowners in energy leases.
That said, here is a selection of some of the more important clauses you might see in a solar energy lease. If these clauses are not in the contract, it may be crucial to have them added in:
The purpose clause explains what the lease is for and lays out what types of land use are permitted to the developer. It may also lay out additional developer rights.
The lease term describes how long the lease will be in force, its beginning date and end date. This is sometimes divided into a “development term,” an “operations term” and sometimes a “construction term.” Each section will have certain requirements. If those requirements are not met, the lease terminates.
The lease compensation clause explains how you, the landowner, will be compensated for the use of your land. Solar leases are typically based on a guaranteed minimum payment, which may be referred to as “minimum rent” or just “rent.” Payments are typically adjusted annually. Most landowners also receive royalties of about 3% of gross revenues.
The reserved uses clause explains what uses the landowner can continue to make of the land during the term of the lease. For example, you might reserve the right to hunt or do oil and gas exploration. However, solar energy developments have a large footprint, and you may have no rights in areas occupied by the solar array. This clause also describes how you and the solar energy company will enter and exit the land.
The payment of taxes clause describes who will pay any taxes, especially if the land will be taxed more or differently during the operation of the solar array. It is crucial for this to make clear who is responsible for ad valorem tax increases and any penalties on roll back taxes for the occupied area.
The removal bond clause makes sure your land is restored to its current state at the end of the lease. In order to ensure that the energy company removes its improvements upon expiration or termination of the lease, a removal bond, letter of credit, or guarantee from a credit-worthy entity is generally required.
An indemnity clause seeks to assure the landowner that the energy company will indemnify you and hold you harmless in any lawsuits related to their use of the land, including suits by mineral owners.
A choice of law and venue clause sets up the system for how and where disputes will be resolved. For example, if the energy company is not from Texas, it may prefer to have any disputes handled in their home state’s courts. Or, they may want to require arbitration instead of court. You may prefer to have disputes handled in local Texas courts.
These are just a few of the possible clauses you might see in a solar lease. You need to understand each and every one of them before you sign the lease. Work with an attorney who has handled solar leases for landowners before.
