How to negotiate an attractive Solar Land Lease. Master Solar Land Lease Negotiations.
What happens when energy developers are interested in your land?
After you’ve listed your land as available for a solar lease by contacting us, our network of energy developers will examine it to determine if it is suitable for a solar project. Developers will contact you to start a conversation about a long term solar lease, and may ask to arrange a site visit. The first steps are informational and don’t involve legal documents, since the developer needs to understand your land in order to plan a project and make you an offer that considers how valuable your land is based on several factors.
Once the developer is convinced that your land presents a project opportunity, you will receive a proposal in the form of either an Option to Lease or a Letter of Intent. At this point, you can reach out to us so that Telkes can provide you with an indicative view on the proposal you have received. Most landowners would also benefit from legal counsel.
Option to Lease or Letter of Intent
The goal of either of these documents is to give the developer time to obtain all necessary permits needed to construct the solar project and decide if he will ultimately lease the land, once it is certain that the project can be built. This process can take 1 – 3 years, and while there is no guarantee that a project will actually be built, landowners should still expect the developer to make regular payments throughout this period. Until the start of construction, the landowner will still have complete freedom on how to use the land, since the developer will not need it yet.
An Option to Lease should describe all the terms that would be included in a future Solar Land Lease, if the developer decides to exercise the option. Once the developer has obtained all required permits and secured financing for the project, he will exercise the option and finalize a Solar Land Lease.
A Letter of Intent is very similar to an Option to Lease, but in some cases it may not be binding, while an Option to Lease will always be binding for the landowner.
How does a Solar Land Lease work?
A solar lease is a long term agreement (often 20+ years) through which a landowner leases land to an energy developer for a solar project that will be built, owned and operated by the developer. A lease is a binding partnership between the landowner and the developer and should consider the project’s full impact on the landowner. The lease will govern the full lifecycle of the solar project:
· Development or Pre-Construction Phase (1-3 years): During this phase, the Option to Lease is in force and the developer applies for permits for the project, conducts feasibility studies and secures financing. The biggest task most often involves securing the grid interconnection. The landowner still has full control over the land.
· Construction Phase (6-12 months): Once all prerequisites are satisfied, the developer will exercise the option to lease the land and enter into a Solar Land Lease before proceeding with site preparation, construction and PV panel installation.
· Solar Operations Phase (20+ years): After completing the project, the developer will produce electricity and conduct required maintenance. This period needs to be long enough to enable the developer to pay back the high upfront cost of the solar project.
· Renewal Period (if any): Some leases include an option to extend beyond the initial term, such as an extra 5 years.
· Restoration or cleanup phase: Once the lease expires, the developer must dismantle the project and restore the land so that its owner can use it for other purposes.
What should I ask the developer to negotiate an attractive lease?
As the landowner, it is in your interest to help the developer understand how valuable your land is during the initial contact phase. Once you receive a proposal with an Option to Lease or Letter of Intent, you will need to understand all the terms included in the future Solar Land Lease that the developer is proposing. Consider asking the developer these questions, and negotiating on the points that are important to you as the landowner:
· What is your solar industry experience? Prioritize companies with a strong track record and ask for references. Telkes has pre-screened the developers who use our platform to reach landowners.
· Which plots will you lease? How will this affect my farming operations and my unleased plots? Understand which plots the lease covers and which remain under your full control. Understand if the developer needs to pass through the rest of your land to access the leased plot. More and more solar projects are being designed to be integrated into agriculture; leases need to describe what rights landowners retain over the leased land. For example, you could retain the right to let your pasture animals graze the grass between the solar panels, or, if the panels are elevated above your field, you can continue farming with minimal changes to your current farming operations.
· How long is my lease commitment? Understand how long each phase of the project is and when the Option to Lease will expire if the developer is unable to obtain all permits. Make sure that a lease fits into your long term plan for your land.
· How much will I be paid and when? Lease payments are typically per acre, for example: $2000 per acre, per year. Some developers will propose leases per MW of installed capacity, while others may even offer a percentage of revenue from electricity sales, which could yield a higher payout for the landowner, but only if the project performs as expected.
· Can I buy some of the produced energy? If your farming operations consume significant amounts of energy, developers will be motivated to sell you energy behind the meter through a Power Purchase Agreement (PPA) separate from the lease.
· Will leasing affect my taxes? The lease should define which taxes and other expenses are paid by the developer, and which remain the landowner’s responsibility. Some leases may affect the property tax assessed on the land, especially if it is rezoned for non-agricultural use.
· What if my land is mortgaged? If you have mortgaged your land, the developer may need your mortgage lender’s agreement that the lender will respect the terms of the lease in the event of foreclosure. It is in your lender’s interest that you make more money from your land to put you in a stronger financial position, so this step should not present an obstacle.
· Can the developer sell the project? The Assignment clause of the lease will determine whether the developer needs to ask the landowner’s permission to sell the project to another developer who would then take over the lease.
· Who is responsible for maintenance? The developer should cover all costs related to maintaining the solar project and the land below it (such as clearing vegetation), although some costs (such as maintaining drainage ditches) might remain with the landowner if they are associated with a larger parcel that remains unleased.
· What if there are other rights on the land? If you have water or mineral rights to your land, you should maintain them throughout the lease. The developer’s only right should be to use the surface of the land for a solar project. Your water or mineral rights should remain unchanged.
· Will the developer restore the land at the end of the lease? Developers should be obliged to dismantle the project at the end of the lease and restore it so that the landowner can use it for other purposes without any additional costs.
Thinking about leasing your land?
Telkes can give you indicative advice, so feel free to reach out.
Email us: telkes@telkes.org
Learn More
Making Money from my Land or Roof: How Much Will Energy Developers pay to lease?
Case Study: A Texas Landowner who found a solar lease that allowed him to retire
Tell us about your land, so that energy developers can propose a solar project on your plot. Make money from your land and make the world more sustainable.
