A representative in a smart suit from a windfarm development company approaches you on your farm.
He is offering you €5,000 to sign an option agreement for five years, and then promises €18,000 per wind turbine every year for the following 25 years, to develop a windfarm on your land.
He also offers to contribute towards your professional fees.
You recall that the IFA have agreed a set of minimum terms with such companies. Your neighbours have signed up.
Times are tough, and all you have to do is sign on the dotted line. The sooner you sign, the sooner you receive the money. Sounds tempting, doesn’t it?
The development of a windfarm on your land can have legal, financial, social, health and environmental implications, among other things. For the purposes of this article, I will speak about some of the legal issues.
First and foremost, such companies are negotiating these agreements every day of the week.
This will more than likely be your first encounter.
You should not sign anything without independent legal advice.
An option agreement is one of the most onerous documents you will sign.
It allows the developer the option to acquire your lands and enter into a lease, if your lands are required by the developer.
If the developer requires the land, the developer is entitled to insist that you execute the lease — and you will have one or more wind turbines on your land, for the next 25 years or so.
Both the option agreement and lease need to be examined closely.
The developer’s solicitor will draft the agreement.
This does not mean that you have to accept the terms in the draft agreement.
It should be a starting point.
It is up to you to negotiate terms that suit you, and ensure that you are fairly compensated for the risk and onerous terms.
Wind agreements can affect your property rights far into the future.
Ensure you know the exact identity of the land that will form part of the agreement. The agreement should be accompanied by a map.
If necessary, instruct an engineer to prepare a map, to avoid any dispute.
A developer may seek an option over all your lands, but it is possible to exclude part of your lands.
Think of the future use you may have planned for the land: for example, a site for a child.
Do not include land that is not required.
Consider practicalities, and how day-to-day farming and access may be affected.
Turbines and access routes can affect your farm greatly. They can change field configurations and create land fragments inaccessible to large equipment.
On grazing land, fences and gates may have to be changed.
The term of the option agreement needs to be considered.
Generally, the developer looks for a five-to-seven-year option period.
This may not be acceptable to you.
If the term is longer, it should be accompanied with milestone payments.
You should consider inserting a clause that planning permission should be applied for by a certain time.
Consideration should be given to seeking a payment at certain milestones: for example, when full planning permission is granted.
The calculation of payment is complex, and can vary from developer to developer.
The payment provisions will determine the level of rent.
The payment is often based on a percentage of the gross payment received per turbine.
There should be a minimum rental payment per megawatt of installed capacity, rather than exporting capacity.
You should also be entitled to a percentage proportion of the operating proceeds of either the turbines on the land, or from the overall development, on a pro-rata basis.
Closely examine the definition of words in relation to payment, to ensure you are getting the best deal.
If a new, more efficient turbine is erected on your land, should a further payment be made?
Should you seek a clause entitling you to an auditor’s certificate to vouch the operating expenses?
A common fear of farmers is that when the lease comes to an end, they will be stuck with large, inoperable machines on their land.
Your lease should provide for the removal of wind-farm structures and roads at the end of the term.
The restoration of the land is expensive.
Seek a bond to be put in place as coverage should the developer fail or if he cannot afford to clean up the area or reinstate the land, once the lease expires.
Such an agreement may affect your ability to comply with conditions in relation to Department of Agriculture schemes, and your entitlement to the receipt of payments.
Ensure you seek professional advice from your Teagasc advisor.
You should also discuss the agreements with your accountant and tax advisor, prior to signing, to avoid any surprises down the line.
Get an indemnity from the developer, in the event that you lose your entitlements as a result of the development.
Many of these agreements contain a clause that the developer can assign the benefit of the agreement to a third party.
This should not be done without your consent, and you could also seek an additional payment in that event. Notice should be served upon you in writing, and within an agreed time period.
Ensure you are entitled to a copy of yearly insurance certificates.
Ensure the developer indemnifies you in relation to claims arising out of the developer’s use of your land.
There can also be clauses restricting the use to which you put adjoining land.
Ensure you have the right to continue using the lands for current agricultural activity, and that you have an entitlement to use all roadways constructed by the developer.
If you have future plans for the land, get agreement from the developer in advance of signing, to avoid any problems down the line.
Most leases will have a voluntary termination clause in favour of the developer, on receipt of written notice.
Should this be coupled with a payment?
Ensure that the developer retains no rights whatsoever, once the agreement has terminated.
An option for the developer to extend the term is not unusual, but a developer should have to negotiate rent again. Is it really essential for the developer to have an option to extend the lease?
The developer should discharge your legal expenses in full.
It is also for the benefit of the developer that you receive independent legal advice before signing.
Your engineering and professional fees should also be discharged by the developer.
You should not be put out of pocket.
In summary, some of the clauses in the agreements can be unfair, and questions need to be asked before you sign.
It is about striking the right balance between your rights and what the wind development company needs, in order to proceed.
Wind turbines on your land offer another source of income, but ensure you sign up to these agreements only after doing your homework, and with your eyes wide open. It is a good idea to form a group, so that you and your neighbouring landowners can negotiate terms collectively; it will increase your bargaining power, and preserve relations with your neighbours. Take your time.
Do not rush into an agreement and do not let a developer push you around.
They may need you a lot more than you need them.
See www.windfarms.ie/ for advice on building a windfarm!
See walshandpartners.ie/blog for more!