There are seven considerations I recommend for people who are asked to enter into a lease of their land for alternative energy projects like solar or wind. The old adage that “unless it is in writing, it does not count,” applies even though these projects can be very positive for communities and landowners.
First, recognize that these leases are lengthy and confusing, even for many attorneys. Seek out help from professionals other than from the company seeking the lease. Company representatives, even if those representatives are local to our region, may not know or may be careless in how they describe the lease and its terms. The company and its representatives work for the company, not the landowner. With many of these leases exceeding 40 years in length, it makes economic and common sense to hire an attorney to help interpret the lease.
Second, ensure that the lease specifies the geographic scope of its application. For instance, many leases include the ability to lease “up to” the entirety of a parcel, but do not literally require all-or-nothing leasing of the entire property. Thus, the company could ultimately decide to lease only a part of the property, creating significantly less valuable land around the leased area for which the landowner would get no rent from the company.
Third, these leases tend to include various periods of time during which different rent and usage terms apply. For example, the lease may include an investigation period, a construction period, a usage period, and one or more extension periods. Believe it or not, those time periods may not be exclusive, such that the construction period may overlap with the usage period. When the periods have different permitted uses and different rent rates, it is crucial to understand the triggers for period changes in the lease.
Fourth, create a list of worst-case scenario expenses and be prepared to pay those expenses. For example, some leases include the ability to be reimbursed for expenses to monitor water quality. In such instances, the landowner may be eligible to be reimbursed to drill a well and have the water tested once a year. Remember, though, that reimbursement means that the landowner must first front the several-thousand-dollar expense for the well before being reimbursed.
Fifth, review every provision in the lease in the light least favorable to the landowner’s position. Such interpretation is likely what the company or its eventual, nameless successor company will demand and impose on the landowner in the future.
Sixth, ensure that the alternative energy components (windmill, solar panels, solar panel frames, etc.) will be removed within a certain period of time following termination of the lease. Insist that the company annually provide the landowner with proof of sufficient, earmarked financial resources to satisfy this obligation when the lease terminates.
Finally, ask for compensation for compaction and topsoil relocation or insist upon full property remediation upon termination of the lease. Much of the land to which these leases apply is farmland that the landowner’s descendants may want to farm again after the lease terminates.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.