The increasing issue of climate change, rising demand for cleaner energy and governmental initiatives toward renewable energy supply raises a number of legal and commercial issues for participants in this growing sector. One should never enter into such agreements without seeking independent legal advice.
If we had to give one single piece of advice to farmers and landowners that find themselves in this situation it would be to take your time, do not rush into signing anything and seek expert advice.
An Option Agreement is one of the most onerous documents you can sign. It allows the developer the option to acquire your lands and enter into a Lease if your lands are required by the developer in the future. 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 normally 25 to 35 years. When the option agreement is signed, you have also agreed the terms of the lease. The lease cannot be renegotiated later. Both the Option Agreement and the Lease need to be examined closely.
Developers tend to have their own standard Option and Lease Agreements. There are drafted in the interest of the developer and not the landowner. The developer’s solicitor will draft the Agreement. This does not mean that you have to accept the terms in the draft Agreement. It is a starting point. My standard advice to landowners is to sign no documentation however informal it looks before taking independent advice.
The I.F.A. negotiated minimum terms with two major windfarm development companies (Element Power Limited and Mainstream Renewable Power Limited) in 2012. These outcomes were as follows:
The outcomes were:
- Annual payment during the option period of €1,000.
- Minimum annual lease payment of €6,000 (per MW) and €18,000 (per turbine).
- Payment of 3% of energy price and green credits up to the year 2015, rising to 5% thereafter.
- With regard to forestry:
(a) full compensation to be paid for grants/premia paid and remaining to be paid
(b) the windfarm development company taking on full replanting obligations
(c) landowners are to receive full crop rotational value for any felled forestry.
- With regard to agricultural schemes, full payment for any losses in REPS, area aid and / or single farm payments
- Consultation regarding location of access and roads, and fixed payment on receipt of Planning Permission of €10,000 to €18,000.
A windfarm turbine or turbines on your land should be treated as an alternative enterprise which will improve your quality of life and the income on your farm. Seek advice from us as we are experienced in advising farmers on the wind electricity business and the agricultural business.
Essentially, the Agreement is about striking the right balance between your rights and what the windfarm developer company needs in order to proceed. Before you put any pen to paper, take your time, do your research and seek expert advice.
Solar Energy Agreements
Many farmers have found themselves being actively canvassed by solar farm developers looking to secure locations for solar farm installations. A number of other large-scale schemes are in the pipeline and farmers and landowners are increasingly being approached by companies wanting to put solar panels on their land.
While the offers of index-linked payments guaranteed for 25 years may seem attractive, there are plenty of contractual aspects to consider before signing on the dotted line. In all cases rental agreements with developers need to be carefully negotiated and landowners are advised to seek professional advice from the outset.
The prospect of additional income will always be welcomed by landowners, but many are signing contracts with installers without taking legal advice or talking through the issues with their accountant and Teagasc advisor.
The standard form of arrangement offered to landowners usually involves the following:
Assuming the site is deemed suitable, the developer will want an option agreement specifying a period whereby they can apply for planning permission for the installations.
Assuming planning permission is granted, the developer can then choose to secure a lease over the property giving the landowner an annual rent in return for allowing the equipment to be installed. Even though high rents are attractive, farmers need to be happy from all angles as they are entering into a long-term arrangement. Twenty-five years is a period of time to rent out a piece of land and farmers should bear in mind any other options that may evolve over time.
These agreements can affect the farm business for many years, so, as with any legal document, it is essential to take specialist legal advice. The prospect of renewable energy can represent a lifeline to struggling property owners but only if the best deal is achieved.
We have developed a strong reputation within the energy sector. We have advised farmers, groups and individuals on all types of renewable energy legal issues. We provide a commercial approach and a strong understanding of the intricacies of the renewable energy business. If you have an opportunity to become involved in the renewable energy industry then let us help you make that chance count.
Ensure that your land use is not unnecessarily restricted while planning is being obtained or during the rental period. Try to rent out land that is least valuable and/or productive to you.
Ensure you speak with your Teagasc advisor, accountant, Local Authority, bank manager etc. in relation to any adverse implications for you with regard bank mortgage borrowing, future development on neighbouring land and basic payment entitlements etc. Farmers should also make sure they receive the land back in a farmable state at the end of the rental period.
When considering whether the rest of the land parcel is eligible for Basic Payment Entitlements the farmer must consider whether or not he can demonstrate that the primary purpose of the land is agricultural. For example, if the primary function of the land parcel is for solar panels, the whole land parcel is ineligible, whereas if the land around the panels (and maybe also under the panels) is grazed in line with normal grazing activity then this land can be considered eligible. Speak with your Teagasc advisor in advance of signing.
Rents vary considerably, depending on individual site circumstances (light intensity, grid connection, etc). In some cases there may be scope to obtain a share of the revenues from electricity generated on the site alongside a rental income, especially where there are high solar radiation levels. Most rental agreements are adjusted for inflation, but it is important to clarify exactly how the rent is structured, how often it is reviewed and what basis it is agreed on. The calculation of the rent can be very complex and needs to be looked at carefully.
It may be possible to negotiate a supply of electricity to your own property at a reduced rate or even free as part of the rental agreement. Farmers should ensure that they incur no costs at all, even during the initial planning and setup.
Solar firms are responsible for maintenance costs and usually have their own insurance in the event of damage to equipment. It is worth checking this from the start, especially if you are planning to graze stock on the land once the solar development is built.
Access is another area to consider carefully, especially during the construction phase. There will be many articulated lorry loads travelling over your land. If they have to get across several fields, it can be difficult even in the best of conditions. If tracks need to be improved or extra ones built, you need to establish who will pay for this. Also look at how the equipment will be taken out again at the end of the rental period and who will pay for this. You also should ensure that you have a right to use all roadways constructed.
We are experienced in advising farmers and landowners in relation to the solar energy business and the agricultural business. Seek advice from us. Contact us today.
Walsh & Partners have advised farmers, landowners and agricultural businesses on a wide range of legal issues including the following:
- Land access arrangements
- Solar agreements
- Wind farm construction & maintenance agreements
- Commercial contracts & negotiations
- Supply agreements
- Government & regulatory advice
- Negotiating power purchase agreements