Solar farm Leases
Renewable energy has become an exciting emerging space, and is set to become a stalwart of Australian energy needs in the near and long-term future. Aitken Lawyers has established itself in this space, having acted on a number of large-scale solar farm developments in New South Wales and having established various solar farm leases.
Landowners in rural areas can be particularly vulnerable when dealing with solar farm developers, and our objective in assisting landowners is to:
- Maximise the amount of rent and other payments that can be paid;
- Protect the owners from liability, and protect their land during construction, operation and decommissioning of the farm; and
- Ensure that owners are able to continue with their farming operations, with the least amount of impact.
What’s the process establishing solar farm leases?
- Developers will typically approach landowners with “bare bones” commercial terms (and typically at low levels), and may ask you to enter into a Heads of Agreement. It is important at this stage to talk to your lawyer, and other experts in the field, to put the financial terms against going market rates, and consider the other terms of the Heads of Agreement (even though this document is usually non-binding).
- Once the commercial terms are agreed, the developer will present an Option Agreement, which gives the developer (or its nominee) a right to enter into a lease over all or part of your land, and the Option Agreement will attach a copy of the Lease. The terms of the Option Agreement and the Lease are negotiated at the same time.
- Once the developer has exercised the option, both parties enter into the Lease (and typically a “Tripartite Deed” with the financier of the developer, which gives the financier certain step in rights in the event of default or liquidation/administration of the developer). If you have any existing mortgage on the land, you would need to get their consent to registration of the lease.
- Strength in numbers. Developers will always attempt to divide and conquer, offering different deals to neighbouring properties. By uniting, landowners strengthened their negotiating power with the developer to achieve more favourable rental income and terms within their agreements.
- Think about the opportunity cost. Developers will attempt to pay a one-off option fee to landowners, whilst asking for lengthy option periods (3-5 years). By entering into the Option Agreement, landowners are taken out of the market (as the option is always exclusive), and if a development doesn’t proceed with the developer, it could have with another. Landowners should push for annual option fees, or fees that are linked to milestones.
- It’s not just about the money. Having a solar farm is enticing to landowners because it represents supplementary income to their farming operations, over an extended period of time (usually leases are 20 – 40 years). However, you can’t just focus on the financial gain. Landowners need to consider the issues which will impact their land and their livelihoods (particularly if they intend to continue their businesses alongside the solar farm operation) – issues such as weed management, erosion, the size of infrastructure, gates and fencing, exclusion zones to the land, and how plant and equipment will be decommissioned, all need to be considered and included in the Lease.
- Who can the developer assign to? The assignment provision within the Option Agreement and Lease is always a hotly contested issue. Landowners need to be satisfied that in the event that the solar farm is sold (whether it was an asset sale or the sale of the underlining shares in the company) the person coming in has sufficient resources to meet its obligations under the lease and has the relevant business experience in operating the solar or solar farm.
- Developers need to be completely liable. Whether in the construction or operation phase, the developer’s employees, contractors, their subcontractors, and potentially energy providers (and their people) will be on your land – anything that happens, particularly in terms of damage to property and injury or death to persons, needs to be at the developer’s risk, and landowners need to be satisfied that the developer has appropriate insurance in place.
Solar farm Leases should be carefully considered. Aitken Lawyers are experienced in solar farm leases, call the team today to discuss your situation on 02 9897 0000.