Wind Farm Developments
Agreeing to give an interest in your land to a wind farm developer is often attractive to landowners because it creates another source of income. A common scenario is that an owner of farmland will be approached and offered a sum of money to allow a wind farm to be built or other works to be completed on the land. These agreements often raise or create complex issues and you should consider how your rights to your property will be affected. Because of the complexity and that they often involve large sums of money, you should seek legal advice from someone experienced in the area. I have put together a list of some of the critical questions and issues you should consider before signing up to any agreement. This list is by no means exhaustive and includes some of the key issues I have been asked to advise on in my practice:
What type of agreement? There are a number of different types of agreements you may be offered by a wind farm developer, some of the common ones include: (a) A lease; (b) An option to lease or purchase the land (the wind farm developer will have the option to lease or purchase the land for an agreed price and other terms that are to be agreed in the future). The wind farm developer will usually have the option exclusively (i.e. you cannot negotiate with any other party); and (c) Granting an easement over your land.
What power do you have in the negotiations? This is one of the first questions that should be asked and will be a factor in how the negotiations proceed. The project may have scoped a number of alternative sites for the wind farm or you may be the only suitable site in the area.
Who are you dealing with? Investigate the company making the offer. Are they reputable and will they have the assets and money to perform all the terms of the agreement (as tenant) over the term of the lease? You may want to take personal guarantees from the Directors of the company or a security bond from the wind farm developer to give you options if they default on the agreement.
How will the lease affect your farming operations or other uses of the land? You should raise your concerns at the start of the negotiations. Using farming operations as an example, whilst the physical footprint of structures built on your land may be small, you will be restricted from using your land in a way that will affect the ability for power to be generated. For example, not being able to plant tall crops or structures that will affect the wind flow over the land and access roads and fences may cut off access to parts of your land. You could seek to include an express right in the agreement that allows you to continue to use your land in certain ways including your normal farming practices.
What rights do you have if your use of the land and ability to earn income from it is affected? It should be clearly set out in the agreement that you will be compensated if there is damage during construction to your crops, livestock or soil or parts of the land are taken out of production.
What are your obligations under the agreement? There are often detailed and complex obligations placed on the landowner to ensure that the development can operate. You should obtain legal advice on your obligations and consider whether you can comply with all obligations.
Insurance: Be aware that you may need additional insurance to satisfy your lease obligations and this should be factored into the rent and/or compensation being offered to lease your land.
Mortgage: If your property is mortgaged you will likely need to get the mortgagee’s consent pursuant to your mortgage agreement or as a requirement of the wind farm developer.
How long is the lease for? This is critical to check as wind farm agreements are often for a long term (e.g. 25 years) with several options to renew the term. This is because there is a large investment made by the wind farm developer and time is needed to earn a return on this investment.
Is this something you need to advise your beneficiaries and/or family of? Following on from the paragraph above, wind farm agreements are often for a long time and may exceed past your lifetime. It might be a good idea to include your beneficiaries in these discussions. If you require advice on estate planning, please contact my colleague Rachael Hocking (email@example.com).
How will you be compensated for the use of your land? There are several different structures, including fixed payments based on (for example) the number of turbines built, the area of land used, the megawatt capacity of the turbines, gross revenue per turbine, annual royalty payments and sign-on fees (or a combination of these). It is a good idea to ensure that even if no works are done on your property you are compensated for any restriction of use.
What happens when the project is at an end? There is a risk that the developer will want to leave you with the wind farm structures and the liability to make good. It is very important that appropriate make good obligations are included in the agreement. For example, the obligation for the wind farm developer to remove all structures, access roads and restoration of soils.
The issues above are also relevant for other types of energy developments such as solar energy.
If you have been approached by a developer and need legal advice I am an accredited specialist in Commercial Tenancy Law and have the expertise to assist you. My team member Kathleen Sutton (firstname.lastname@example.org) is also available to take your questions on wind farm developments.
The contents of this publication is for reference purposes only. This blog post does not constitute legal advice and should not be relied upon. If you require legal advice please contact Sarah Ward at Aitken Partners on Ph: (03) 8600 6056 or email@example.com