Leasing land for solar or wind energy development can be a lucrative opportunity for property owners. However, these leases are complex and come with long-term commitments that require careful attention. Before signing a lease agreement, it’s essential that property owners fully understand the terms and implications of the provisions within the lease. Below are a few of the more critical provisions in solar and wind energy leases that property owners should pay close attention to.

1. Term Length and Extension Provisions

Solar and wind energy leases often involve long-term commitments, typically ranging from 20 to 50 years. The lease term is usually divided into multiple phases:

• Option Phase: A period (often 3-5 years) during which the energy company has the right to evaluate the land and determine its viability for energy production. The company typically pays some form of compensation during this phase, but no development occurs yet.
• Construction Phase: If the company decides to proceed, the construction phase begins, during which the energy infrastructure is installed.
• Operational Phase: The period when energy is being produced.

Property owners should be aware of the extension provisions, which often allow the energy company to extend the lease beyond the original term if the project is still operational. Understanding the total possible length of the lease, including all extensions, is crucial to avoid unforeseen long-term commitments.

2. Payment Structure and Most Favored Nations Clause

One of the most important aspects of a solar or wind energy lease for property owners is how they will be compensated. Payment structures in these leases can vary, but common compensation types include:

• Fixed Payments: A set amount paid annually or semi-annually for the duration of the lease, regardless of how much energy is produced.
• Royalties: A percentage of the revenue generated from the energy produced on the property. Royalties typically offer more upside for property owners if the project is highly successful.
• Option Phase Payments: Paid during the option phase, these are typically smaller than the fixed or royalty payments but provide some compensation before construction begins.

Property owners should ensure that the payment structure is clearly defined and negotiate terms that provide them with fair compensation. If royalties are involved, it’s important to understand how they will be calculated and to seek a minimum royalty rate to ensure a consistent income stream even if production fluctuates.

In addition, the property owner will want the lease to contain a most favored nations clause. This clause ensures that the property owner is treated no less favorably than other landowners or parties in similar agreements with the same company. 

3. Land Use and Development Restrictions

When leasing land for solar or wind energy projects, property owners need to be aware of how the lease will restrict their use of the land. Solar farms and wind turbines often require significant space, and once these installations are in place, they can limit other activities on the property. Key considerations include:

• Exclusive Use Provisions: These provisions often grant the energy company exclusive rights to the leased portion of the land, preventing the property owner from using it for other purposes (e.g., farming, grazing, or other development).
• Access and Easements: The lease will likely include easements for access roads, utility lines, and maintenance areas. Property owners should ensure that these easements do not overly interfere with other parts of their property.
• Buffer Zones: Wind turbines, in particular, may require buffer zones where no other activities can occur. Property owners should review these zones carefully to understand how much of their land will be affected.

It’s essential to clarify how much land will be used and how other activities on the property will be impacted. If certain uses of the land are important to the property owner, he or she should negotiate to retain those rights in the lease.

4. Decommissioning and Restoration Obligations

Solar panels and wind turbines have a limited operational life, which is partially why the energy companies prefer to lease land rather than purchase land. Property owners should pay close attention to the decommissioning clause in the lease, which outlines the process for removing equipment and restoring the land to its original condition.

Key points to address include:

• Who is responsible for decommissioning? The energy company should be obligated to remove all equipment, including foundations, access roads, and utility lines, at the end of the lease.
• Financial Security: The lease should require the energy company to set aside funds (often in the form of a bond or escrow) to cover the costs of decommissioning. This ensures that the property owner is not left with the financial burden if the company is unable to fulfill its obligations.
• Timeline for Restoration: The lease should specify a reasonable timeframe for completing decommissioning and returning the land to its pre-lease condition.

Without proper decommissioning provisions, property owners could face significant costs and delays in restoring their land once the energy project has ended.

Conclusion

Leasing land for solar or wind energy development can be a great financial opportunity, but it comes with significant legal and practical considerations. Property owners should carefully review key provisions related to term length, payment structures, land use restrictions, decommissioning obligations, liability protections, and termination rights. Consulting with an attorney experienced in energy leases can help the property owner fully understand the lease terms.

‍